Many individuals borrow funds from external sources to meet their credit requirements. Banks and Non-Banking Financial Companies (NBFCs) provide numerous loan options to those seeking finance. The two main types of loans are secured loans and unsecured loans. Unsecured loans do not require collateral against the loan. Secured loans, on the other hand, require an asset, such as property or vehicle, to be pledged against the loan.
Understanding loan against property
One of the common types of secured loans include loan against property (LAP). As the name suggests, you may borrow a loan by keeping a commercial or residential property as collateral. Doing so provides the lender a guarantee of repayment.
It is imperative to make a well-informed borrowing decision in case you wish to avail of a LAP. You may clear all your doubts pertaining to LAP by understanding the following pointsin detail.
- What is the eligibility criteria of such loans?
To avail a loan on property, it is important to identify if you fulfill the eligibility criteria. Banks and NBFCs provide loans to individuals who have a regular source of income. Besides, it is necessary that the property is in your name. Lenders also take into consideration the value of the property before approving such a loan. To be eligible for such a loan, lenders check your credit score, your past repayment history, and outstanding credit card debt, besides many other factors.
- For what purpose are such loans borrowed?
Generally, such loans are borrowed by individuals seeking a large amount. The disbursed amount may be used to pursue higher education, either within the country or internationally. You may borrow a loan against your residential or commercial property for the purpose of debt consolidation or to purchase a new home, land or commercial property. Furthermore, such loans may be used to expand the business or convert working capital limit to a term loan.
- What types of property may be used as security?
Many are not aware of the types of property that may be kept as collateral while availing of a loan for property. Some of the basic types of property that you may take a loan against include self-owned residential property, self-owned and self-occupied residential property, and self-owned but rented residential property. You may also secure such a loan against self-owned piece of land. Businesses wishing to avail of an LAP may keep self-owned commercial property or self-owned but rented commercial property as collateral.
- What are the terms of the loan?
One of the most important aspects to take into consideration while borrowing a loan against commercial or residential property is the interest rate. A lower interest rate reduces the repayment amount to a great extent. You may, therefore, compare various lenders and choose one that offers the most competitive interest rates. Other factors to keep in mind include fees and charges, such as processing fees, prepayment fees, part-payment charges, and foreclosure charges, besides others. Before selecting a particular lender, you may check the offered loan tenure, borrowing limits, and repayment schemes, among many other things.
Borrowing funds against property is the most convenient option toobtain a large amount of capital within a short period of time. As such loans are secured, lenders are willing to provide finance to the eligible individuals. You may therefore mortgage a self-occupied house or a rented residential property and meet your financial obligations without any constraints.