As of 31st December 2019, the number of loans against property accounts in India stood at 2.27 million, recording a whopping 18.7% YoY growth, according to a TransUnion CIBIL report. In the meantime, origination balances on account of LAP loan were recorded at Rs.384 billion, as per that report. Of these, 15.2% of customers belonged to the new-to-credit category.
It brings into light the growing consideration amongst individuals to utilise the equity on their owned properties for large-scale fund acquisition as an alternative to selling those properties. A property loan enables borrowers to tap into their asset’s value sans relinquishing its ownership.
Moreover, such a credit facility has become significantly convenient with time as reputed financial institutions continue employing measures to enhance its utility.
What are the eligibility criteria to avail a loan against property?
The loan against property eligibility criteria slightly differs from one financial institution to another. However, the standard yardsticks to determine the eligibility of an applicant are more or less similar.
- Must be an Indian citizen living in India.
- Should possess a credit score of 750 or above.
- Should work in an MNC, private or public sector (for salaried individuals).
- Must have a regular and stable source of income (for self-employed individuals).
Individuals can qualify for a loan against property by satisfying these eligibility criteria. Among these criteria, some lenders might allow relaxations for the credit score, provided a LAP loan applicant sufficiently satisfies other critical parameters.
What are the documents required to apply for a loan against property?
Documents that both salaried and self-employed individuals are required to submit when applying for a loan against property are –
- Copy of the ownership documents of the property to be collateralized.
- PAN.
- OVDs (Officially Valid Documents) for KYC that include voter ID card, Aadhaar card, etc.
This list of documents is not definitive, and financial institutions might require supplemental ones when processing a loan application. Nevertheless, alongside these, applicants also need to produce income proof.
Salaried individuals can submit bank account statements and salary slips as income proof. Self-employed applicants can submit his/her business’s income tax returns as well as the latest bank account statements in place of income proof.
Regardless, prospective applicants ought to consider a few factors before applying for a property loan with any specific financial institution.
What are the considerations before applying for a loan against property?
Prospective borrowers might consider the following pointers before applying for a LAP loan –
- Loan quantum
One major consideration when applying for a loan against property is the loan amount that a lender provides against the appraised value of an asset. The loan to value ratio – the percentage of a property’s value provided as a loan – varies from one lender to another and also depends on the applicant’s profile.
- Disbursal process
Individuals might also bring into consideration the disbursal processes of different lenders and standard time taken for the same before applying for a loan. It is a quintessential measure, especially when considering a loan for an emergency.
- Repayment tenor
The repayment tenor for LAP loan goes up to 20 years. Individuals can select any tenor based on their convenience. However, there are certain ramifications to long and short tenors –
- An extended repayment tenor reduces the EMI burden; however, increases the cost of the loan, as interest accrues over a longer stretch of period.
- A short repayment tenor increases the EMI burden but reduces the cost of the loan, as interest accrues over a shorter stretch of period. However, individuals must be wary when choosing a shorter tenor as particular lenders increase the rate of interest on its account.
Lastly, prospective applicants must also consider the better option between floating interest rate and fixed interest rate when applying for a loan against property. The former fluctuates based on prevailing market conditions while the latter remains fixed. However, the latter is typically lower than fixed interest rates.
