Things you should know before buying loan against property

Are you trying to arrange a large amount of fund in emergency? The best option to do so is taking Loan Against Property (LAP). Loan against property is the loan taken by keeping commercial or residential property that is on your name as a collateral. Loan against property is opted by many for its various features like low interest rates, longer tenure and fund usage flexibility. You can take loan against property for various reasons mainly funding your child’s education, medical expenses, business expansion, etc. If you are planning to take loan against property, here are a few points that you must know before applying.

  1. Valuation of Property – As discussed above loan against property is taken on the commercial or residential property of your ownership as a collateral with bank. To get a certain amount of loan sanctioned against that property, the bank values the property. The sanctioned amount of loan is decided on the basis of the current market value of the property. Usually, the sanctioned loan amount is up to 70% of residential property and 60% of commercial property value.
  2. Property Ownership – The property that you are planning to keep as collateral should be owned by you and not involve any dispute over it. In case the property is found under any dispute, the bank refuses the loan application. Also, if there are multiple owners of the property it is mandatory to get everyone’s consort in order to get the loan approved.
  3. Loan Repayment – Usually, loan against property involves longer tenure. If the loan tenure is four to six years it can be extended as well till eight to ten years. The longer tenures ease the burden as the EMIs are lower.
  4. Interest Rates – Interest rates are lower on loan against property as compared to personal loans. This is because the property kept as collateral assures 100% repayment of the loan by selling it even if the applicant fails to repay the loan amount. Lower interest rate suggests smaller repayment amount and thus makes the repayment process easy.
  5. Penalty Charges – The loan against property allows you to take a loan amount between 2 lacs to 10 crores depending on the property you keep as collateral. There is processing fee charged, which is usually deducted from the sanctioned loan amount. Other than there is service charge levied on services provided by the lending bank. In case you pay the EMI after the set date, there are certain penal charges that you have to pay back to the bank. These charges differ from bank to bank.

Tip: The chances of getting a larger loan amount sanctioned are greater in case of loan against property. Although, it is suggested to consider your repayment capacity and income to make sure that you don’t go into defaulter list. In case of not being able to repay the loan, the bank can sell your property kept as collateral to recover the loan amount.