In the post covid scenario, the economy really hit the doldrums, especially the credit market. As the economy hit a standstill and unemployment numbers increased, both output and demand for output decreased as well. Uncertain times called for uncertain measures and people were more willing to hold money in the form of cash. As the level of investment came down, acceptance of loan proposals also faced a downturn.
Banks wanted to steer clear of bad loans and especially those in the housing market which could lead to a crisis. Although RBI has reviewed its repo rates and reverse repo rates multiple times in order to incentivise banks to lend out more, the effect hasn’t been very strong. So now in order to get a loan against any sort of property you need to pass through a list of tedious guidelines and clear quite a few eligibility criteria before you get approved and your loan sanctioned.
Concept of loan against property
A loan against property, also known as LAP, is when you take out a loan from the bank against some property-based asset that you have pledged as collateral. This property can be anything, an apartment, a house, a plot of land you might own or a plot of land on which some construction is going on. The asset is treated as collateral till the entire loan amount including interest charges are repaid and that too by the pre-selected date. It is undoubtedly a secure instrument to meet your financial needs without having to worry about any constraints or due dates. The tenure on such loans usually extends up to several decades, matching the amount of loan you’ve applied for.
Process of applying for LAP
This loan as previously stated is applicable on any kind of asset or property you might own that may be of significant capital worth in the future. You can avail the loan by mortgaging any residential, commercial or industrial property. Rates are especially low if you are mortgaging a residential property. Here are more details on the process.
Check out the eligibility criteria of the loan
For being eligible for taking out a loan you need to fulfil certain conditions like your residence and citizenship, your age, income, profession and your credit history. For salaried individuals, these are pretty straightforward – you need to be an Indian citizen residing in the country for at least the past one year, must own property in the country, must belong to the age bracket of 23 to 62 years and should be working for any private, public or multinational company as a salaried employee for at least 4 years or more. If you are self-employed, then the age bracket is slightly more, up to 70 years. Your business balance sheet and credit score should also be taken into account to prove that you’ve been in business and maintained a steady flow of annual income for the years active.
Fill in the documents required for loan sanction
The next step is to go through the list of documents you need to showcase during your application for the loan. For salaried individuals, these include valid identity proof like voter card, pan card, Aadhar, driver’s license, latest salary slips, bank account statements and the credit score for the past three months and the property papers you are willing to deposit as collateral or mortgage.
For self-employed individuals, along with these, you would also need your bank account statements for at least the previous 6 months as well as income documents like the financial statements, balance sheet, IT returns etc.
Compare rates across different banks or lending institutions
This step is also quite important. If you are willing to take out a loan against property you would be willing to do so at low interest rates. The floating interest rates for salaried individuals in most cases range from 8 to 15% p.a., whereas, for self-employed individuals, it ranges from 8.10% to 18% p.a. Along with that you need to take into account types of fees or charges applicable for the transaction of these loans. Other factors to take into account are the fact whether you want to go for floating rates on the loan or fixed interest rates.
Fill up the application form
This step is pretty straightforward. Once you have cleared the above steps you can apply for the loan directly on the chosen bank’s online website or portal. An important thing to note here is that while doing this you should calculate your loan to value ratio on the property and the associated EMI charges so as to plan your payment accordingly. Any discrepancy in this may lead to you losing out on the collateral and the bank seizing your property.
Await for the approval
This is the last step. Once you have filled in the details and submitted your documents and details, you need to wait for the lender to go through your application thoroughly. If he has done that and found you suitable for the loan, you will be called to show up at the branch with your necessary documents.
Benefits of LAP
These are usually big-ticket loans and they come with their own set of guidelines and regulations. They offer quite substantial benefits like:
- Low paying monthly EMI options on the loan
- The long tenure extending up to 18 years or more
- Minimum prepayment charges
- Low interest rates offered across various banks and private lenders along with the speedy discharge of the loan amount or mortgage value so you can put it to good use without any delay
We hope this article helps you chart out your loan application and repayment process and make the best decision for yourself.
