A loan against property (LAP) requires the borrower to provide property as collateral to the loan provider. It is a secured form of loan where it is necessary that you submit your property documents to the lender. The amount of loan that you will receive here depends on the value of your property. Generally, a loan for a value that is lower than the market value of your property is provided. In case you fail to make repayments, the lender has the right to sell your property and recover dues. The interest rate on loan against property is lower than the rate carried by personal loans, which are unsecured forms of loans. The lower interest rates here make it an attractive option for borrowers to avail when applying for a loan.
Interest Rate on Loan Against Property
The interest rates vary based on your choice of the lender for loan purposes. The rates start from 8%, plus a processing fee is charged that 1% to 3% of the loan amount and the GST paid thereon. You can check with your loan provider for their interest rates and other charges payable on loan against property. The interest rates are of two types-
- Fixed interest rate- This rate remains constant throughout the whole loan tenure and as a result, the amount of your EMIs also remains stable. The borrower and the lender both are aware of the interest charges that are included in the EMI payments. For instance, when the fixed rate is 9% for your home loan, it shall not change irrespective of changes in market rates. By using an online EMI calculator, you can easily compute the amount of your monthly EMIs when you know the fixed rate.
- Floating interest rate- This rate fluctuates in response to prevailing conditions in the market. As a result of that, the amount of EMI also keeps on changing. This rate is determined on the basis of the index rate set by the RBI. In case the index rate rises, the interest rate on the loan against property also increases. In case of a fall in the index rate, the interest rate on the loan also decreases.This purely depends on market behaviour and both the borrower and the lender cannot control this rate.
Eligibility Criteria and loan against property documents
The facility of loan against property can be availed by salaried persons and self-employed individuals, provided these parties meet the following criteria-
- The age of the applicant should be between 25 years minimum and 55 years maximum
- For a salaried person, should be a permanent employee of a company.
- The businessman should be in the same business for last 3 years
- The loan cannot be provided for a value exceeding the current market value of your property
- In the case of a businessman, you need to show your income tax return for at least one past year.
In addition to the above criteria, you need loan against property documents, which comprise of-
- Address proof and KYC documents: You can use documents such as Aadhar card, driving license, and passport for this purpose. You need to show any one of these.
- Documents related to property such as electricity bills, property documents, etc.
- PAN card details
- For businessmen: the documents for proof of your business such as registration certificate and income tax returns
- For salaried persons: Three to six months’ salary slips can be required by the lender as well as your bank statement for the last few months.
In addition to submitting the above loan against property documents, you are also required to fill out the application form for loan and attach your photograph at designated places. The documentation can be more here in comparison to the personal loan which is collateral-free.
It is because of the fact that your lender is providing you with a high amount. Hence, it is imperative that he needs to ensure that you are the owner of the property that is being mortgaged. This loan is thus secured, as your property is mortgaged and in return, you get your loan approved with a low-interest rate.
It can be said that the interest rate on loan against property can range between 8% and 12%, based on which lender you have chosen for the LAP. While obtaining a LAP you should also consider the processing fee and the additional charges. The interest rate on this loan can either be fixed or floating.
The EMI payments will be constant if you choose a fixed rate of interest. If you choose a floating rate, then the interest rate would adjust to the index rate of RBI and the amount of EMI will vary from period to period. The loan against property documents includes your KYC and address proof documents, salary slips and bank statements of the last few months, property documents and the business proof documents.