Alok Shah (name changed), a self employed entrepreneur recently celebrated his companyÃ¢ÂÂs 10th anniversary and now wants to grow his business to another level. While he had earmarked funds towards this business expansion plan, due to an emergency the funds had to be deployed elsewhere. Rather than postponing the plan and losing momentum, he thought of applying for an unsecured loan and was shocked to know the high interest rate that he would have to bear. He shares this with his close friend, who advises him to unlock the potential of his own house and use it as a security and avail a loan against property.
As the name suggests, loan against property is a secured loan that is advanced by mortgaging a self owned property (residential or commercial) with the lender. Read on to know more about this loan that has emerged as popular funding option for many, due to the host of benefits that it offers.
Depending upon the lenderÃ¢ÂÂs policies, you can avail of a loan up to 60 percent of the market value of the underlying property. Further you can take advantage of the relatively long repayment tenure (up to 15 years) by ensuring that the monthly repayment instalment is within your reach.
The lender does not restrict the use of the sum lent. It can be used for multiple purposes ranging from meeting an upcoming wedding expense to financing business and expansion plans i.e. taking a loan for business to meeting any healthcare expenses and even to purchase a property or an asset which may not otherwise qualify for a loan in its own capacity.
The loan is not only for the salaried, but also for self-employed professionals and businessmen.
Compared to other loans, loan against property has minimal documentation requirements and quick disbursal.
Unlike unsecured loans wherein your present income will determine the loan amount, in case of loan against property the present property value along with income will determine the eligible loan amount. In addition, your age and past credit history will also impact the loan amount and repayment terms.
Along with the application form and proofs of identity, address and income, you will also have to submit the ownership documents along with a property valuation report. Remember, to state the correct information as the lender will verify all the information furnished.
On verification of all information and satisfaction that you will meet the repayment obligation, the lender will process your loan application. A field visit will be undertaken to assess the property to be placed as collateral.
Over and above the interest rate applicable on the loan, depending upon the lender there may be a processing fee, mortgage stamp duty and other charges.
Once the loan is sanctioned after completion of all formalities, the loan is disbursed. Depending on the quantum of loan, the loan can be disbursed in a single or 2-3 instalments, which may or may not be spread over a period of time.
Generally, the maximum repayment tenure is 15 years. Also, there may be prepayment charges in case of prepayment (partial or full) depending on the type of interest rate chosen and in case of commercial refinance.
During the loan tenure, if you are able to get better loan terms, you have the option of transferring the loan from the existing lender to the new lender. This will involve prepayment of the existing loan followed by applying for a new loan with the new lender. Before opting for a loan transfer, calculate all the costs involved. With prepayment charges and loan processing and other charges on the new loan, loan transfer may not lead to any savings.
To ensure that you are able to maximise the benefits with minimal costs, consider the following:
Loan application is the first step in the entire loan process. It should be easy and simple with reasonable time and cost involvement.
While it is true that you should only borrow what you can easily repay, ensure that you are able to avail the desired sum. There are a few lenders who also consider Ã¢ÂÂsurrogate incomeÃ¢ÂÂ, which lends additional borrowing power to those who may not have adequate independent means of income.
The interest rate applicable on the loan amount is not the only cost attached to the loan. There may be several other charges which run into a few hundred rupees or may be a percentage of the loan. Consider all as they together make-up the total cost of the loan.
An interconnected wide branch network would enable the customer to access services at multiple points with ease. Further, internet access to the loan account helps you track the repayment dues. The convenience that it offers cannot be discounted in todayÃ¢ÂÂs hectic lifestyle.
While the loan will give you an immediate access to the desired funds, you must ensure that you are able to meet the repayment regularly. Hence, look for a lender which provides you with an option to customise the loan to meet your income pattern so that you are able to service the loan regularly without any stress.