“A loan against property can be availed against your home, a commercial establishment such as shops, offices, or even a plot.”
Suppose you are seeking to get a loan for business expansion or setting up a new business. Or you need a loan for any personal reason such as a wedding, buying a new car, or medical procedure, and healthcare. In such a scenario, a loan against property can be a good strategy. Not only are such loans using the property secure, but the interest rates are also low compared to personal loans.
However, if you seek an instant loan without documents, this may not be a feasible option. There are several requirements of documents for a loan using property, and there is a thorough check on that as well. Process for a loan using the property is faster and depending on the property’s value, you can get a loan at a reasonable interest rate.
We will cover how to get a loan against property and also cover the interest rate. But before that, let’s understand the advantages of procuring a loan against property.
Advantages of Loan Against Property
A loan against property can be availed against your home, a commercial establishment such as shops, offices, or even a plot. Advantages of loan against property are:
- The interest rate is lower compared with a personal loan because a loan against property is a secured loan backed by collateral.
- There is no limit or restriction to its usage: You can use this loan for personal reasons, business reasons, medical reasons, or financing a new home.
- Most of the loans against property have zero to minimum repayment charges. If you wish to repay the loan before the tenure, there are often no additional charges or interest.
- Lenders are more flexible while allocating loans against property and the processing time is faster because a property is provided as collateral. It’s a secured loan because if you fail to repay it, the property can be seized, hence less risk for the lender.
- Tenure for repayment of a loan against property is generally longer and can be as long as 15 years, making it easy for the borrower to repay. If we compare with personal loans, this is a significant advantage since loan repayment becomes easy. In the later part, we will discuss the benefits of a loan against property vis-a-vis a personal loan.
How to Get Loan Against Property?
Step 1: Choose the Lender
Almost every bank and major NBFCs provide loans against property, with detailed guidelines on the process for loan and documents required for the loan. However, the criteria for choosing the lender should be the interest rate and the repayment conditions offered. The lower the interest rate, the better is the deal.
Step 2: Property Evaluation
Once the lender is finalized, the next step is to evaluate the property, which is the main factor that decides the loan amount sanctioned. Based on the net value of the property based on circle rates and market rates, generally, up to 60% of the value of the property can be sanctioned as a loan.
Step 3: Eligibility Check
Once the property has been evaluated and the value determined, the next step is an eligibility check for the borrower. Credit history and score, along with past loan repayment history, income level, age, family, etc. are evaluated and checked. Once it is completed, the exact loan amount is determined, along with the interest rate applicable.
Step 4: Documents Required for Loan Against Property
Documents required for a loan, such as against property, depending on the lender and the current Govt guidelines.
In general, here are the most common documents requirements:
- Salaried Employees: Income proof via Form 16, bank statements, address proof, and ID proof is the most common documents required.
- Non-Salaried Employees: Income proof via income tax returns, P/L statements, business registration, ID proof, and address proof is required.
- Proof of Ownership of the Property: Documents related to proof of the property’s ownership are required. This concerns only that property that is being used as collateral for availing the loan.
Step 5: Loan Sanction & Repayment Procedure
Finally, the loan amount is sanctioned, and the amount is directly credited to the borrower’s bank account. At the same time, the process of repaying the loan via EMIs is finalized. Generally, post-dated cheques are preferred, or ECS (Electronic Clearing Service), wherein the EMI is directly debited from the bank account.
Loan Against Property or Personal Loan: Which is Better?
Often borrowers are stuck between choosing a loan against property or choosing a personal loan: Since you can use the loan amount in both cases anywhere without any limitation, this is a valid comparison.
In case you don’t have any property to keep as collateral, then a personal loan is suggested. But if you have a property, then taking a loan against that is recommended.
Below are the two most significant advantages of a loan against property compared to a personal loan:
1. Interest Rate
In the case of a loan against property, the interest rate of 7.20% to 15.15% per annum charged which is much less compared to a personal loan. And the reason is the collateral. There is no collateral in a personal loan, which puts the lender at risk, hence a high interest rate.
2. Tenure of Loan
While loans against property have a higher term of repayment, which can go as long as 15 years, personal loans are of shorter duration with high EMIs and high-interest rates.
At the same time, there is a disadvantage as well. If you cannot repay a loan against property, then the lender can confiscate the property that is being used as collateral.
Do you still have doubts about a loan against property? Consult with the loan or finance experts at MSMEx, and clear all your doubts! MSMEx is a unique micro advisory platform wherein you can avail of business mentoring, coaching, and guidance from business advisors as per your needs and requirements.