Nowadays, Banks provide multiple options for credit modes for loan seekers. However, most of them are expensive to credit due to the levied interest rates. Hence, the Loan Against Property (LAP) is a viable alternative to personal multipurpose credit loans.
What is Loan Against Property (LAP)?
Loan Against Property (LAP) is a loan that is secured against property value as collateral. The property can be of any type, including residential, commercial, rented, it can also be an industrial property. When the debtor will repay the loan along with the interests, the property will be relieved from being the collateral.
What are the Eligibility factors?
- Most of the reputed banks in India require a credit score of around 750 to approve a LAP. This is represented by the Credit Information Bureau (India) Limited (CIBIL) assessed score.
- Banks or the lender look into the debtor’s capacity to repay the loan. This is recognized by certain identifiers or parameters, CIBIL score is one of them.
- The age of the borrower is also an important parameter by the bank to justify the tenure and amount of loan. Generally, the age range approved for LAP by multiple national banks lies around 25 to 60 years old.
- Age is considered to mitigate the risk of non-repayment of the loan, especially for people around the age of 60 years (which is the age for retirement in most sectors in India).
- Furthermore, often there can be some special interest rate levied for people above a certain age (usually 60+).
- The income of the borrower directly represents the capability of paying the monthly installments (EMIs) of the loan.
- Borrowers with higher monthly income have benefits of easy approval, higher loan amount, and longer tenure for loans.
- The monthly income and the monthly installment paying capability will also determine the loan amount.
Job stability (stable occupation):
- Borrowers with stable occupations with regular income will have higher approval chances.
- Furthermore, the terms for maximum loan amount and tenure of repayment could be increased for them as well.
- This is the reason why Government employees will get some extra benefit due to their stable job and guaranteed salaries. These benefits may include the higher loan amount, increased tenure, lower interest rates, and lower collateral charge.
- The value of the property termed for collateral against the LAP will usually have to be at least 125% of the loan amount.
- The value of the property will be accessed by the bank after verification of property papers.
- Banks will send designated agents to evaluate the property based on physical inspection, location, land size, etc.
- Based upon these factors the property value as per current market condition and standards will be termed in the loan. According to the terms of most banks, the maximum loan which can be availed will be equivalent to around 75% of the property value.
Repayment of Previous Loans:
- The lender/bank may also consider the repayment record of any previously credited loan by the debtor.
How is the Loan Against Property Interest Rates decided?
- Applicant’s background: Details like the borrower’s occupation type make a significant impact on the interest rate of the loan. Factors like whether the borrower’s source of income is a business or a job, whether the borrower has a government job, whether they have regular sustainable income are all considered.
- Property Value: The valuation of the property based on condition, age, location, and other amenities are also factored in while determining the interest rate. Whether the property is domestic or commercial is also a crucial detail.
- Other factors may include credit score and past loan status.
Most Loan Against Property Interest rates from reputable banks range from 9.8 to 14+%.
Why should you prefer Loan Against Property – Benefits:
- High Approval Rates. Furthermore, the approval process is easy and convenient.
- Multiple types of properties can be used as collateral. These properties can be domestic, commercial, or even owned-land.
- Borrowers can continue using the property. However, there are restrictions and guidelines in place, if the borrower decides to sell the property termed as the collateral for the loan.
- There are tax benefits for borrowers.
- Income Tax Act- Section 31 enables the borrower to have tax benefits concerning the interest amount.
- Furthermore, Under Section 24 of the Income Tax Act, the borrower can get tax benefits up to Rs. 2,00,000, if the loan is to build a new house.
- Despite all these benefits, the primary gain is the competitively lower Loan Against Property Interest Rates. Since the loan has collateral, i.e. the property, the lender/bank has less risk of losing the money. This results in a reduced rate of interest for the borrower.