Loan Against Property FAQ

Top 5 Frequently asked questions about LAP Answered

Top 5 Frequently asked questions about LAP Answered

A loan against property or LAP is a secured multi-purpose loan given by lending institutions like a bank or non-banking financial institution (NBFC) to a borrower in exchange for holding their property as collateral. Collateral is an asset pledged or given to another party in exchange for receiving funds up to the repayment of the funds taken. Collateral ensures that the lending institution has a sure-shot way of securing their money in the eventuality of default or failure to pay. Property is one of the best collaterals for taking a loan, specifically a loan against property or mortgage. You can get high funding with collateral-based secured loans as the property rights and ownership title lies with the lender until you repay the loan. These loan against property FAQs can help you better understand the details of the loan against property and decide whether it is the right choice for you.

What are the benefits and details of the loan against property/LAP?

One of the first loan against property FAQs is about its benefits. A loan against property has various benefits.

  • You can use a loan against property formanyreasons. These include:

    o Higher or overseas education

    o Marriage/ wedding celebrations

    o Expansion of existing business

    o Home or business infrastructure renovation

    o Consolidation of high-interest debt

    o Medical emergencies requiring high finances
     
  • A loan against property has lower interest rates and a longer repayment tenure than a personal loan, as the former is a collateral-based loan. These benefits make it easy and convenient to repay the loan against property.
     
  • Compared to collateral-free personal loans, you can get a high loan amount in a loan against property as the asset pledged is of high value to the lender. An example of the maximum sanction amount in a personal loan is Rs. 30      lakhs, while the maximum sanction amount can go up to Rs. 5 crores in loan against property.
     
  • Even though the property of the borrower gets pledged to the lender, the borrower can continue to reside and habituate the property. It is only in the case of defaulting or failing to make loan payments despite getting reminders,        that the property pledged gets seized.

What are the eligibility criteria for a LAP?

The eligibility criteria of a loan against property are less strict than personal loans because the proof of ownership of title to a property is a strong marker of the ability to repay the loan. In a loan against property, how much loan amount you are eligible for depends on the Loan to Value (LTV) ratio of the asset pledged. LTV ratio is the maximum money the borrower can get based on the current fair market price of the property. In a loan against property, the maximum LTV is between 40% and 80% of the fair market value of a property. But apart from the LTV, you must tick other boxes to apply for a loan against property. The finer details of loan against property and eligibility criteria might vary from lender to lender, but as a general standard they include:

  • The borrower must be a minimum of 21-25 years of age
     
  • The borrower must be a salaried individual, a self-employed professional, or a partnership or private ltd. company
     
  • They must meet a specific monthly income requirement based on the nature of their profession
     
  • They must have continuous, stable work experience with the same employer or in the same profession, for 1-3 years
     
  • They must have Indian citizenship

What are the documents required for a LAP?

This question is another most-asked loan against property FAQ. To verify your ability to repay the loan, the lender will ask you to submit specific documents. The document list might vary from one lending institution to another, but generally they include:

  • Identity proof like your Aadhar card and PAN card. For a firm/ company applying for a loan against property, the lender might also ask for their GST registration certificate and other applicable registration documents
     
  • Address proof like electricity bills of the property, a rent agreement for any rented property, passport.
     
  • Income proof documents like:

    o Salary slips for salaried individuals

    o Income tax return statements for the previous two years or so

    o Profit/ loss statement, balance sheet for the last two years or so

    o GST returns (for self-employed businesses, companies, and firms)
     
  • Bank account statements like salary credited statement and operative bank account statements for the last 3-6 months
     
  • Property documents like the title deed
     
  • Credit score report and processing fee cheque

You might also have to submit other documents as requested by the lender to confirm your reliability to the lender.

What properties are eligible and not eligible for taking a LAP?

Sometimes, borrowers can have a misconception that only their home or residential property can work as collateral for taking a loan against property. However, depending on the lender, even commercial or industrial properties are eligible to take a loan against. Even a piece of land can work as collateral for a loan against property, per the discretion of the lending institution. However, if there is more than one owner of the property, all the respective co-owners must apply for the loan against the property together and be co-applicants. Moreover, the property in question must not have any existing mortgage or encumbrance on it. It must also not be under any legal dispute and have a clear title. Any property tangled in litigation is not considered fit to be an asset for a loan against property. Other details of the loan against property will be specified clearly in the terms and conditions of the loan contract.

What are floating and fixed loan interest rates in a LAP?

Borrowers often get confused in the finer details of loan against property, especially between fixed and floating interest rates. Floating interest rate and fixed interest are two types of interest rate in a loan against property or any loan for that matter. In fixed interest, the interest payable for a loan against property remains the same during the loan tenure. In floating interest, the interest rate keeps changing from time to time. The changes are due to external factors like inflation, market fluctuations, changes in the Reserve Bank of India benchmark rates, and the like that influence the floating interest rate. However, despite the fluctuations, floating interest rates are lower than fixed interest rates, so those borrowers who choose the floating interest rate option pay lesser in their loan repayment. You can use a loan against property EMI calculator to find the interest rate payable and the loan tenure for the desired loan amount.

To conclude:

Knowing these top five loan against property FAQs will help you understand the terms and conditions used by the lender or the lender’s authorized agent. It will help you be an active participant in the loan application process and select the loan amount suitable for you. Once the lender confirms your eligibility, creditworthiness, property title, and documentation, it will issue a loan sanction letter. At Poonawalla Fincorp, you will receive guidance in understanding the contract and terms and conditions at length. Once you accept the T&C, the loan will get disbursed within minutes or the same day.

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