pnb housing
April 29th, 2020

How to Secure a Loan against Property

Blog Seprator

As a form of secured loan, this is available on more benign terms since the property papers are kept as collateral by the lender.

Loan against Property (LAP) is a secured form of loan borrowed from a loan provider. As the name itself reveals, it is a loan given against property, which should be physical and immovable (residential/ commercial). A loan provider or lender can be a bank, NBFC or HFC (Housing Finance Company).

An applicant must mortgage his/her own property as collateral to procure this loan. The loan amount disbursed is based on the value of the property – commonly termed Loan to Value. Depending on varied norms, the loan advanced can comprise around 60% of the property’s value. The loan taken then needs to be repaid via equated monthly instalments or EMIs, which continue for a specific period of time at a predetermined interest rate. Compared to other loans – car loans, personal loans, etc. – the rate of interest for LAP (as well as other procedural charges) is the lowest among all.

This is because Loan against property is a form of secured loan for the loan provider, which keeps the property documents as collateral or security. But if the borrower / customer defaults in making payments for whatsoever reason and circumstances, the property rights will then stand transferred to the lender.

Therefore, it is important to ensure EMIs are paid on time every month without interruption or delays. Also, delays or nonpayment can impact the borrower’s credit rating or score, thereafter making it difficult to secure any other loan.

When applying for  Loan Against property LAP, a few points should be kept in mind.

Loan Tenure

The tenure of the loan is the first point. Since LAPs are secured loans, lenders may typically offer a longer repayment tenure, which could be up to 20 years, based on the applicant’s age, income and other eligibility criteria.

Loan Amount

The next point is the loan amount. Since loan providers have the security of a physical asset, a bigger loan amount can be offered, depending on the property value. Before this, however, the lender will conduct due diligence and evaluate the property’s value. Besides this, the applicant’s age, income, past payment history and credit rating score will be taken into account before the loan is disbursed.

Interest Rate:

The third thing that matters is the rate of interest. As mentioned earlier, LAP interest rates are lower than those of unsecured loans. The more secure the loan, the lower the interest rates and vice versa. Where the risk of monetary loss is low, lenders can afford to offer lower interest rates.

Processing Time:

The fourth concerns the time taken in processing the loan. Unlike personal loans, which can be processed within days, the LAP takes time because lenders need to carry out proper scrutiny of the property and its documents. An evaluation of the property’s worth is also done in determining its current market value. This due diligence ends up extending the total time for processing the loan.

Eligibility

The fifth point is to look for a lender who can provide customized eligibility programs in order to offer the maximum loan amount. Such a lender should also be in a position to offer quality services after loan disbursal since the relationship could continue for up to 20 years. These services should include digital ones too, which can ensure convenience, speed and a seamless experience.

Insurance Cover for the Loan Amount

Finally, the loan provider should also be able to offer extra protection via an insurance cover for the loan amount as a rider for the security of the borrower and his/her family to safeguard against any unforeseen or unfortunate event.

In essence, Loan against Property advantages include lower interest rates, higher loan amount, greater flexibility, a longer tenure for repayment, insurance cover and excellent post-disbursal services. 

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