Loan against property (LAP) has gained much popularity among borrowers over the years for a number of reasons, including quick funds for urgent needs and a relatively low rate of interest. For the unaware, a loan against property is a secured loan that allows the borrower to keep their property – commercial or residential – as collateral with the lender in exchange for funds.

Thus, a loan against property is a type of mortgage. Here, the loan amount depends on the property being mortgaged and the applicant’s profile. As with any loan, those with a good CIBIL score and steady source of income can avail of the most competitive interest rates and favourable borrowing terms.

Non-banking financial companies (NBFCs), housing finance companies, and banks generally provide such loans at interest rates lower than the interest rate on business or personal loans since the loan is secured in nature. Any individual with a property, whether self-employed or salaried, is eligible to apply for LAP. 

What Makes a Loan Against Property Popular?

There are three main reasons for the increasing demand for loan against property among borrowers. These include:

• Affordability – A loan against property is cheaper than a business/personal loan
• Right to Ownership – The borrower can continue occupying the property even after availing of the loan
• Scope of Application – Such loans can be availed of for any reason, be it sponsoring a family wedding, a vacation, a child’s higher education, or setting up/expanding a business

Benefits of a Loan Against Property

There are many benefits of applying for a loan against property. Some of the key ones include:  

• Low EMIs – One can repay a LAP with easy EMIs over a tenor of usually up to 20 years
• Low rate of interest – Loan against property interest rate is relatively low compared to personal or business loans interest rates
• Ease of availability – As a secured loan, it is more accessible for most than a personal loan

Factors Affecting your Loan Against Property Interest Rate

Understanding property loan interest rates is necessary before applying for funding. While in most cases the rates vary from 8.25% p.a. to 22% p.a., here are some of the key factors that can determine your LAP interest rates. 

CIBIL/Credit Score

The CIBIL or credit score plays a vital role in determining your eligibility and mortgage loan interest rates. A high score ranging between 750 and 900 indicates high creditworthiness. Thus, a Credit score of 750 or above is desirable when availing loans at the best interest rates. 

Having a low CIBIL score, on the other hand, makes the applicant a high-risk borrower in the eyes of the lender. As a result, the borrower may be offered a higher interest rate. Furthermore, if one’s credit score stands way below the recommended mark, the loan application may even be rejected. 

Borrower/Applicant’s Profile

The profile/background of the borrower or applicant – age, occupation, residential address, and monthly income – can affect the loan against property interest rate and other factors. For instance, an older applicant only a few years from retirement will be offered a shorter tenor, which will translate to higher EMIs. Similarly, an individual who showcases less-than-ideal regularity in income will be charged higher LAP interest rates.

Loan Tenor

The duration for which LAP is taken also affects the interest. Obviously, the shorter the duration, the higher is the EMI for loan repayment. Longer tenors equal smaller EMIs but higher interest outflow.

The Property To Be Mortgaged

The property in question also affects the loan against property interest rates. This means the lender will take into consideration the type of the property – commercial or residential – and its age, location, property value, and overall condition. 

For instance, residential and commercial properties are valued differently and hence, are likely to have different interest rates. Furthermore, a high-priced property in fine condition at a prime location will fetch lower interest rates as compared to an old, worn-out building. 

Who Can File a Loan Against Property Application?

An individual looking to apply for a loan against property applicationshould fulfill the following eligibility criteria, which can vary lender wise:

• The property against which the loan is being taken shouldbe located in India. Lenders usually specify a list of locations they consider for properties to be mortgaged under LAP.
• The minimum age of the applicant should be 25 years and the maximum age must not exceed 65–70 years.
• The applicant can be a salaried or self-employed individual with a steady source of income. If self-employed, the applicant must be engaged in the same business since the last 3–5 years.
• The concerned property should not have ownership conflicts. It must also have clear and legal titles registered in your name.

How to Apply for Loan Against Property?

Applying for a loan against property is quite easy. An individual can either apply for the loan online or offline. Those applying offline will need to visit the lender at the nearest branch along with all necessary documents. 

The online application process involves following a few easy steps. All you need to do is:

• Fill up the application form online
• Furnish all relevant documents
• Wait for the lender to contact you

Once all the documents are submitted, the lender will evaluate the risk associated with lending, based on a market analysis of the mortgaged property, income and savings, payment record of any existing liabilities, etc., and then decide on the property loan interest rates.

Final Word

For both salaried and self-employed individuals, a loan against property is a boon. Not only does it leave your hard-earned savings intact, but also comes at easy, low-cost EMIs with long tenors. Before opting for a property loan, make sure you are aware of all important aspects to make an informed decision. 

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