One of the many benefits of owning an immovable property is that you can use it to get funds urgently. A loan against property (LAP) is an easy way of getting credit quickly. As secured financing options, loans against property are generally disbursed easily without any restrictions. Thus, borrowers can use funds for any purpose, be it a personal or business requirement.
Additionally, there are various types of loans against property to suit different individual needs. However, the chances of getting approved for a LAP and the interest rate offered depend on your eligibility. Fortunately, with a proper understanding of the factors that affect your loan against property eligibility, you can get a loan at favourable terms. We highlight the five main factors that bear an influence on your loan against property eligibility.
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Credit History
One of the most crucial aspects of availing any kind of loan is your credit history. Lenders look at your CIBIL score to ascertain your repayment capability and sanction a loan accordingly. Your CIBIL score represents your previous repayment records, and your ability to exhibit good credit behaviour. Instances of late payments, defaults in repayments and cheque bounce damage your credit score, and thus hinder your chances of getting a loan against property. Hence, you should ideally keep your credit score above 750 in order to be sure of your eligibility.
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Tenor
A longer tenor means that your payments are spread over an extended period of time, resulting in lower EMIs. A shorter tenor implies higher EMIs and greater risk from the lender’s perspective. By opting for a longer tenor, you can increase your chances of availing the loan, as the risk is reduced in this case. Moreover, it is recommended that you use a loan against property EMI calculator to determine your EMI structure according to your selected loan tenor.
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Pledged Property and Property Documents
An important factor that plays a crucial role in your eligibility for LAP is the property you plan to pledge as collateral. A highly valued property in an upscale location will significantly improve your chances, as it provides high security to the lender. A low-value property, on the other hand, will not be very helpful in getting you approved for your LAP application.
Additionally, the documents related to the property are also considered by the lender before sanctioning a loan against property. Before approving the loan, your lender makes sure that the property has a clear title and has the necessary permissions from the authorities. Thus, all property-related documents must be provided to the lender. These include title deeds, building plans, approvals from relevant authorities and other documents demanded by the financial institution. Moreover, if your property is insured, it further increases your chances. Mortgage insurance minimises the risk, both for the lender and the borrower, as the insurance covers loan repayment in case of unforeseen exigencies.
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Regular Flow of Income
A stable and regular source of income is one of the key factors that makes you eligible for a loan, as it reflects your repayment capability. Generally, lenders favour salaried individuals, professionals and government employees who have a stable job and a fixed monthly income. Individuals with a low salary should opt for an EMI that is below 60% of their monthly income, lest their loan application gets rejected.
A significant factor that supports your income generation is the regular filing of Income Tax Return. The ITR of the past 3 years is required in the case of self-employed individuals. Consistent ITR proves that you have a regular flow of income. Thus, it is important to file your ITR on time every year. If you have inadequate ITRs, your chances of availing a loan decrease significantly.
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Age of the Borrower
One of the primary factors that determine your loan against property eligibility is your age, as it is considered to play a big role in your ability to repay the loan. An individual nearing the age of retirement has fewer chances of getting their loan application approved. In that case, applying for a shorter tenor loan might be a good idea. The age criteria to avail a loan against property is generally between 21 and 60 years. However, the criteria vary in the case of different lenders.
Other than the above-mentioned factors, there are additional factors that can affect your loan against property eligibility. These include:
- The borrower should have an Indian nationality
- The borrower should have a minimum work experience of a certain number of years (depending on the lender’s policy)
- The borrower should have paid EMIs for other loans on time for at least three months before submitting the loan application
Summary
In conclusion, the major factors that can improve your eligibility for availing a loan against property are a credit score higher than 750, longer loan tenor, high-value property collateral, complete property documents, steady flow of income and the requisite age for borrowing.