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Loan Against Land - 5 Things you Should Know

Published on Mar 27, 2020Updated on Jan 23, 2024

Loan Against Land - 5 Things you Should Know

Owning land instills a feeling of ownership and pride. It also brings a lot of happiness along with a sense of joy and achievement for the land owner. Other emotions that also play a key role are a great sense of security and peace of mind.

India is a country where owning a piece of land fulfills lifelong dreams. Other than the fact that you can build your dream home on this plot of land, it can be used in your times of need as well. These days, a number of lenders offer loan against plot to anyone who owns a piece of land and would like to use it as collateral for securing a loan. A loan against land can be used to construct homes, develop a factory or build commercial business plants on the pledged plot of land. Here are some things you need to know before applying for this product.

Must Read: How to Get Tax Benefits on Loan Against Property

What is a Loan Against Property?

A loan against property (LAP) is a type of secured loan in which the borrower promises their property as collateral in order to collect funds from the lender. The property can be either residential or commercial, and the loan amount is commonly calculated as a percentage of the property's worth. Loan Against Property often have lower interest rates than unsecured loans since the lender assumes less risk as a result of the collateral. LAPs can be utilized for a variety of goals, including business growth, education, marriage, medical costs, and debt reduction. If the borrower fails to repay the loan, the lender has the authority to seize and sell the property in order to reclaim the due amount.

Features and Benefits of Loan Against Property

The following are the features and benefits of a loan against property (LAP):

  1. Loan amount: Loan Against Property provides larger loan amounts than other types of loans.
  2. Longer loan tenure: Loan Against Property offer longer payback durations, which can go up to 15 years, making monthly EMI payments easier to manage.
  3. Reduced interest rates: Compared to unsecured loans, Loan Against Property have lower interest rates, making them more accessible to the borrower.
  4. Multiple uses: Loan amount can be utilized for a variety of purposes, including business expansion, education, medical costs, and debt consolidation.
  5. Simple eligibility requirements: Compared to other forms of loans, LAPs have relatively simple eligibility criteria, making them more accessible to a broader range of consumers.

Eligibility Criteria for Loan Against Land / Property

Before you make your application with the lender, make sure that you have done the necessary research towards your loan against property eligibility check. Here are some of the general eligibility criteria

For Salaried Individuals:

  • You should be a minimum of 18 years and a maximum age of 60 years
  • You should be a resident of India
  • You should haveaBachelor’s degree
  • You should be employed in a private limited company, partnership firm, MNC, Public limited company, Government or Public Sector Company
  • Your minimum monthly income should be Rs. 40,000 or more

For Self-Employed Individuals and non-professionals:

  • You should be at least 21 years of age at the time of loan application
  • You cannot be more than 65 years of age before the loan matures
  • Your business organization should have been operational for a minimum of 3 years
  • Your business organization should have declared profits for the last two consecutive years
Must Read: Loan Against Property in Delhi

Documents Required for Loan Against Property

Here is a list of documents required for loan against property

Document type

Salaried person

Self-employed person

SME/Firm

Identity proof

Passport Copy / Voter ID card / Driving License / PAN Card

Passport Copy / Voter ID card / Driving License / PAN Card

GST Registration / KYC of partners / PAN card of Directors / Company PAN Card

Address Proof

Ration card / Telephone Bill / Electricity Bill / Rental agreement / Passport copy / Passbook / Driving License

Ration card / Telephone Bill / Electricity Bill / Rental agreement / Passport copy / Statement / Driving License

Electricity bill / Rental agreement / Passport of Directors or Partners

Age proof

PAN Card / Passport / any other certificate from a statutory authority

PAN Card / Passport / any other certificate from a statutory authority

-

Income proof

Account statements / last 6 months’ salary slips / passbook

Account statements / last 6 months’ salary slips / passbook

ITR for the past 2 years / Balance sheet for the past 2 years / P&L statements / GST Returns

Additional documents

  1. Form 16
  2. Past 3 years’ ITR
  3. Processing fee cheque
  1. Form 16
  2. Past 3 years’ ITR
  3. Processing fee cheque
  4. Income statements and other financials for the past 2 years attested by a CA

Audited financials for the last 2 years

Also, remember to calculate your eligibility to avail the loan with the help of online loan against land calculators. You can also use SMFG India Credit’s free online Loan against Property Calculator for this purpose.

Must Read: Types of Mortgage Loans In India

How to Apply For a Loan Against Property in 5 Easy Steps?

Applying for a loan against property (LAP) can be a simple procedure. Here are the five simple actions to take:

  1. Verify Eligibility: The first step is to look into the eligibility criteria of various lenders to see if you qualify for an LAP. This includes factors such as age, income, credit score, and property worth.
  2. Collect Documents: Once you've identified a lender, you'll need to gather the necessary documents, which include identity proof, address proof, income proof, property documentation, and account statements.
  3. Apply Online/Offline: You can apply for an LAP online or in person at a lender's branch office, where you will submit your application form and papers.
  4. Property valuation: The lender will next assess the worth of the property and make you an offer based on the market value of the property, your income, and repayment capacity.
  5. Disbursement: Once the loan has been granted, the lender will deposit the loan funds into your account or issue a demand draft, depending on your request.

It is critical to examine several LAP offers from various lenders in order to select the one that best meets your needs. When signing the loan agreement, make sure you understand the terms and conditions, including the interest rate, processing fee, prepayment charges, and foreclosure charges.

Must Read: Loan Against Property Interest Rates

Things to Keep in Mind When Applying for a Loan Against Property

Here are some factors to keep in mind while applying for a loan against property (LAP):

  1. Interest Rate: LAPs often offer lower interest rates than other unsecured loans, so it's vital to compare rates to find the most affordable rate.
  2. Loan Tenure: Loan Against Property  have longer repayment periods, but the interest paid over the life of the loan may be higher. Select a tenure that is suitable for you.
  3. Eligibility Criteria: Before applying, review the eligibility criteria of various lenders. This includes factors such as age, income, credit score, and property worth.
  4. Processing Fees: Processing fees are charged by some lenders and can be a certain percentage of the loan amount. Check the fees and include them in the overall loan cost.
  5. Prepayment Penalties: Certain lenders may levy prepayment fees if you pay off your loan before the end of the term. Evaluate these fees before signing the contract.
  6. Repayment Alternatives: Review the various repayment options, such as EMI and bullet payments, and select the one that best matches your financial condition.

* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us

FAQs

Do we get tax benefits on land loans?

You would be entitled to a tax exemption of up to INR 1,50,000 per year if you purchase land. The title transfer fees for the plot and the registration fees are also included in the exemption limit if paid in the year in which the property is built.

What is the interest rate for a loan against property?

The interest rate on a loan against property (LAP) from SMFG India Credit is determined by a number of factors, including the loan amount, loan tenure, borrower's credit score, and property value.

Does a loan against property come under 80C?

A loan against property (LAP) does not fall under the purview of Section 80C of the Income Tax Act. Only certain investments and expenses, like life insurance premiums, Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), and home loan principal repayments qualify for Section 80C deductions.

How can I get a loan against my property without proof of income?

Without proof of income, it may be difficult to obtain a loan against property, as lenders often require income verification as part of the loan application process. Other lenders, however, may provide LAPs depending on the property's valuation as well as other considerations such as credit score and current assets.

What is the maximum loan available in a loan against property?

The maximum loan amount available in a loan against property (LAP) is determined by several factors, including the property's value, the borrower's income, credit score, and loan tenure. Lenders often give LAPs ranging to 70% of the property's value, with a maximum loan amount of INR 5 crores.

What happens if land tax is not paid in India?

In India, if land tax is not paid, local government authorities may take legal action against the property owner, which may include imposing penalties, issuing a notice, and eventually auctioning off the property to recoup the unpaid taxes. To avoid legal complications, it is critical to pay land tax on time.

Are original documents required for a loan against property?

Original documentation is necessary for a loan against property. This comprises the title deed, sale deed, and other important paperwork for the property. Documents pertaining to the borrower's income, employment, and creditworthiness may also be required by the lender. Before applying for a loan, it is critical to carefully understand the lender's requirements.

Can I get a loan against property without a registry?

A loan against property is often not possible without a registry. The registration acts as verification of property ownership, and lenders frequently request it as collateral for loans. Other lenders, on the other hand, may provide alternate kinds of collateral or loan products that do not require a property register.

Is a credit score required for a loan against property?

Indeed, a credit score is usually necessary for a loan against property. Lenders consider a borrower's credit score for determining creditworthiness and ability to repay a loan. A good credit score can boost your chances of acceptance and lead to better loan conditions and interest rates.

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