If you own a property, whether it’s a house, a commercial building or a plot of land, you may be able to use it as collateral to obtain a loan. This type of loan is commonly referred to as a loan against property (LAP), and it can be a useful source of financing for a variety of purposes, such as business expansion, home renovation, or debt consolidation. However, before applying for a LAP, it’s important to understand how much loan you can get against your property and what factors can affect the loan amount.
Loan against property eligibility criteria
To be eligible for a LAP, you must meet certain criteria set by the lender. These criteria can vary from one lender to another, but typically include the following:
- Age: You must be at least 21 years old at the time of application and not more than 65-70 years old at the time of loan maturity.
- Property ownership: You must be the legal owner of the property that you want to pledge as collateral.
- Property type: The property that you pledge as collateral should be a residential or commercial property or a plot of land. Some lenders may not accept agricultural land as collateral.
- Property value: The value of the property should be sufficient to cover the loan amount. Most lenders offer LAPs of up to 60-70% of the property value, although this can vary depending on the lender’s policy and the location of the property.
- Income: You must have a regular source of income to demonstrate your ability to repay the loan. This can be in the form of salary, business income, or rental income.
Factors that determine the loan amount
The loan amount that you can get against your property depends on several factors, such as:
- Property value: The value of the property is the primary factor that determines the loan amount. The lender will conduct a valuation of the property to assess its current market value and determine the maximum loan amount that can be offered. The loan amount is typically a percentage of the property value, ranging from 60-70% for residential properties and 50-60% for commercial properties.
- Income: Your income plays a significant role in determining the loan amount. The lender will assess your income to determine your repayment capacity and may offer a higher loan amount if your income is high.
- Credit score: Your credit score is an indicator of your creditworthiness and can affect the loan amount and interest rate offered. A higher credit score can lead to a higher loan amount and lower interest rate, while a lower score may result in a lower loan amount and higher interest rate.
- Loan tenure: The loan tenure is the period for which the loan is granted, and it can also affect the loan amount. A longer tenure can result in a higher loan amount, but it also means paying more interest over the loan’s lifetime.
A loan against property can be a useful financing option if you need a large amount of funds and have a valuable property to pledge as collateral. The loan amount that you can get against your property depends on various factors, including the property value, income, credit score, and loan tenure. It’s essential to assess your repayment capacity and compare the loan offers from different lenders to find the best deal. Remember, a LAP is a secured loan, and defaulting on the repayments can result in the lender auctioning off your property to recover the outstanding amount. Therefore, it’s crucial to plan your finances carefully and borrow only what you can afford to repay.
