World is filled with stories of entrepreneurs who took a small personal loan and turned into an empire. Loan against property is becoming common practice among people to use the property as a loan for business so don’t think that you are the only one to do so.
Generally, the nationalized banks, Private sector banks and NBFCs against commercial and residential property offers loan against property. The loan can be availed for a maximum period of 15 years for the purpose of working capital requirements, urgent or immediate need of the company or the individual or business expansion.
- Documentation required is minimal. The loan amount is based on cash flow of the last 3 years finances. There’s no need for evidence of future projected turnovers
- Simple re-payment – As the loan tenure is long enough it reduces the strain on cash flow
- Foreclosure option – Foreclosure option is available with a charge of up to 2-4% depending on the bank
- Part-prepayment option – This option for LAP is possible for a minimal or in some cases NIL charge
Any immovable property possessed by the borrower can be used as collateral by the bank to give away a loan. Generally, an amount of up to 50-60% of the estimated Market value of the property is the maximum amount banks lend against property; this percentage may vary slightly when it comes to NBFCs. As this is a government recognized loan it’s safe and secure and also because you’ve offered your property as collateral.
Through property mortgage loan the borrower can receive a higher amount compared to personal loans.
Loan against Property interest rates
Interest rate on LAP can be fixed or floating based on the terms and conditions applied by the bank or NBFCs. Things that can help the borrower in getting a favorable interest rate will be a good credit score. Also, the interest rates will depend on the type of property mortgaged.
Mortgaging loan against property is an efficient way of raising money cheaply and swiftly. However, borrowers need to be careful in understanding their repayment capacity as the bank or the NBFC can foreclose the loan in case of non-repayment.