Need funds? Have a house? You could take a Loan against Property. Read on to know more.
1. What is a Loan against Property? How is it different from a Home Loan?
The two loans are poles apart. A Loan against Property is a multi-purpose loan. The end-use could be funding your elder child’s marriage, your younger child’s education abroad, expanding your business. The collateral (secured asset) for this loan is a property which is already in existence or a plot of land. A Home Loan on the other hand is taken only for the purpose of buying a residential property.
2. Why should I take a Loan against Property?
Your assets like gold, FD etc. can be used as collaterals for loans. Real Estate is a valuable asset. You can leverage this asset and obtain necessary funds.
3. Should I take a Personal Loan or a Loan against Property?
A personal Loan is also an all-purpose loan. However, no collateral is required for a personal loan. If you have a property, you should leverage it for funds. A Loan against Property scores over a personal loan for the following reasons:
A Personal Loan is available at steeper interest rates (around 20%) as compared to a Loan against Property (around 15%)
A Personal Loan is available for shorter periods (1-5 years) while a Loan against Property is usually available for longer tenures of upto 15 years.
The Processing feeis lower for a Loan Against Property (around 1%) as compared to a Personal Loan (around 2.5%)
4. Can a self-employed person avail of a Loan against Property?
Yes. Both salaried and self-employed applicants can obtain a Loan Against Property.
5. Can NRI’s get a Loan against Property?
Yes. Most banks are willing to offer loans to salaried Non Resident Indians (NRIs). They should live in select countries and should work for reputed organizations.
6. Do you need to specify the purpose for which you avail a Loan against Property?
Most banks don’t require you to specify the purpose for which you take a Loan against Property, upto a particular limit. Above that, they might require you to provide an undertaking that the loan is not for a speculative / illegal purpose.
7. Can a Commercial Property act as collateral for Loan against Property?
Yes. You can take a Loan against Property by providing a Residential or Commercial Property as collateral. You can also take a loan against a plot of land.
8. What is the quantum of the loan I can get?
For a Loan against Property, around 60-80% of the market value of the property provided as collateral depending upon the bank you opt for. Factors like your income, savings, investments, job stability, age, dependents, spouse’s financial health, other loans in your name also play a crucial role in determining the loan amount.
9. What are the taxation aspects?
Unlike a Home Loan, no tax incentives are available on the EMIs in case the Loan against Property has been availed by a salaried person. A businessman however can claim tax deduction on the entire interest amount paid on the loan if he can prove that the loan funds were used to improve his business.
10. How would my property value be assessed?
The bank shall determine the value of the property after conducting a formal valuation process.
11. What are the documents required for applying for a Loan against Property?
The documents differ for a salaried and self-employed person:
A Salaried applicant needs to submit:
1. Application form with photograph 2. Identity and Address Proof 3. Latest Salary Slips 4. Form 16 5. Bank Statements (Last 6 months) 6. Processing fee cheque
A Self-Employed applicant needs to submit: 1. Application form with photograph 2. Identity and Address Proof 3. Proof of business existence & Education Qualifications. 4. Last 3 years Income Tax Return 5. Last 3 years P&L and Balance Sheet 6. Bank Statements (Last 6 months) 7. Processing fee cheque
12. How much time does the Bank take to disburse the loan?
Banks usually take around 2 weeks for disbursing the Loan against Property once all documentation is completed.
13. Do I need to insure the property?
Yes. The banks usually require that the property be insured against flood, fire, flood, earthquakes etc. during the loan tenure.
14. How can I repay my loan?
You can repay your Loan against Property through Equated Monthly Installment (EMIs). It can be paid through Post Dated Cheques (PDC) or Electronic Clearance System (ECS)
15. Can I pre-pay my loan?
Yes. The Loan against Property can be pre-paid prior to schedule. Commercial Banks cannot charge foreclosure charges on any floating rate term loans sanctioned to individuals as per a recent Reserve Bank of India (RBI) directive.
16. Can I make part pre-payment of my loan?
Yes. You can make part pre-payments of a minimum amount.
17. How is the interest calculated?
Interest rates are usually calculated on a monthly or daily reducing balance method, depending on the bank.
18. What happens when the property is jointly owned by more than one person?
All the co-owners of the property will automatically become joint applicants of the Loan against Property.
19. Can I take a loan against a house I have given on rent?
Yes. All that matters is that you have a proper title deed and other ownership documents. It doesn’t matter whether you live in the house or give it on rent.
20. Does a bank check my Credit Score before giving me a Loan against Property?
Yes. Even though a collateral is provided, banks check the Credit Score of the applicant for his repayment history in case of Loan against Property. A CIBIL score over 750 is usually considered good enough for loan approval. Here are some tips for improving your Credit Score.
In case of a loan against any other asset like shares or gold, the bank would sell the pledged asset to recover its dues. That’s a lower risk to take as compared to losing a home. A Loan against Property could be a good alternative for you if you are confident of repaying your dues on time.
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