New Delhi: Businesspersons commonly use loan against property to meet their cash flow requirement. Loan against property is a secured loan against an immovable asset (property or land) as mortgage with the lender. They include a house, office, or a shop. The borrower should be the property owner, and the title should be clear.
Mortgaging an asset like property helps them raise a big loan at lower rates. Some salaried individuals use this product to meet large expenses such as children’s wedding or their education.
That being said, keep in mind a few important things before going for a big-ticket financing facility like a loan against property. Firstly, most lenders usually sanction a loan amount of up to 75% of the pledged property’s current market value. However, you should not over-borrow just because you’re eligible for a higher loan quantum and stick to your exact financing requirement so that it’s easier for you to clear your loan in full on time. All your debt obligations combined shouldn’t ideally exceed 50% of your household income.
Secondly, despite being a collateralized loan product, your income and credit score are taken into consideration while sanctioning a loan against property. Meaning, you’ll get the best loan offers only when you have a sufficient income (making you capable of timely repayments) and a credit score of over 750-800. Thirdly, your loan application could be rejected if there’s no absolute clarity about the ownership of the pledged property, the paperwork is not in order or the property is in a dilapidated condition.
|Bank||Rate of Interest (in %)||Amount|
|State Bank of India*||8.80-9.65||Up to 7.5 crore|
|Bank of Baroda||8.05-13.20||2 lakh – 10 crore|
|Axis Bank||8.05-13.20||5 lakh – 5 crore|
|HDFC Bank||8.05-13.20||Up to 65% of property value|
|Indian Bank||8.05-13.20||Up to 65% of property value|
All the above mentioned loans are for a tenure of 15 years
*Loan against property cannot be availed against business purposes
When taking a loan, always opt for a lower tenure, as it saves the total interest outgo. LAP also takes time for disbursement. The lender must determine your property value before deciding the loan amount.
Business owners can also get a tax deduction on the interest portion of the loan.