Property Loan Types: Choosing the Right Financing Option

A property loan, also referred to as a loan against property is a secured loan availed by individuals or businesses as a solution for various funding needs. Borrowers can pledge both residential and commercial properties as collateral to avail funds.

However, before applying, one must learn about the different types of property loans. These loans are categorized based on the type of property, employment, and usage. The following sections will provide the details of different property loans to help readers make an informed decision. 

Property loan based on the type of property 

The sub-categories of loan against property are: 

• Loans against residential property

This type of loan can be availed against a residential property like a house, villa, or flat. Borrowers pledge their homes as collateral to avail of this loan. When faced with medical emergencies and other financial needs, many people choose this loan as it does not carry any usage restrictions. So, borrowers can use the money for home repairs, weddings, or children’s education.

People can avail of loans against commercial properties such as office spaces, shops, and industrial units. It is an effective financing option for funding specialized educational needs, repaying debts, and many more. Notably, the commercial property’s current value determines the loan amount. 

It’s a loan against a rented property. In other words, people avail of this loan against a leased contract, i.e. applicants have to submit their monthly rental receipts to get funds. Lenders check the long-term cash flow and determine the loan amount. People can avail of lease renting discounting if they want a high-value loan but they do not have other options for collateral.

Property loans based on usage 

Here are the types of property loans based on their usage:

• Loan against property for debt consolidation 

Consolidating multiple loans into a single one and paying it off by availing a loan against property is an effective way to deal with debt. It offers people the opportunity to use their properties as collateral to solve their financial burdens. A single large loan carrying a relatively low interest rate is much easier to pay off.

Considering that weddings are important events in one’s life, lenders offer this type of loan to help people make lavish arrangements. An LAP helps people to fund wedding venues, and caterers and purchase jewellery. The repayment tenure for wedding property loans typically ranges from 5 to 15 years.

The cost of higher education is increasing rapidly. Thus, many people are availing of a loan against property to fund their children’s higher education, especially in foreign countries. A specialized degree from a top-graded institute has become all the more attractive in today’s competitive academic environment. The loan amount can range from Rs.5 lakh to Rs.1 crore depending on the collateral’s market value. 

Property loan based on employment 

The different sub-categories are as follows: 

• Loan against property for salaried people

There might be situations when salaried individuals need extra funds to meet certain emergencies. Most lenders offer this type of loan as salaried people have a regular stream of income. While the eligibility criteria vary from one lender to another, generally, the minimum and maximum ages are 21 years and 60 years respectively. 

It might be challenging for self-employed people to obtain a loan against property. However, if they can produce relevant documents regarding consistency in income for the previous 5 years, the chances of getting the loan sanctioned will increase. 

Reasons to opt for a loan against property 

Why do people apply for different types of property loans in India? The following is a list of benefits of availing loans against property:

• Relative low rate of interest 

While it’s similar to a personal loan, one of its features lends it an edge against personal loans. Considering that a loan against property is a secured loan, the loan against property interest rates are typically less than personal loans.

• Maximum loan tenure 

There’s no need to get stressed over loan repayment. The tenure for a loan against property extends up to 18 years. So, borrowers can repay comfortably. 

• High-value loans

Generally, lenders offer a certain percentage of the property’s current market value and it’s quite high. As a result, if potential borrowers have a high property value, they can easily avail a high loan amount.

• Borrowers can continue to occupy

Perhaps, this is its greatest advantage. Regardless of the type of loan, borrowers can continue to occupy the property even as it is mortgaged. What’s more? People can even rent or lease out this particular property to earn an income.

• No restrictions regarding the end-use

Borrowers can make use of their property loans for any purpose ranging from children’s education, medical emergencies, funding family events, other financial liabilities, etc. In this regard, it’s similar to a personal loan.

• Quick and easy application procedure 

All that a borrower needs to avail of this secured loan is a freehold commercial or residential property in his or her name and the relevant documents. Once the person submits their application along with all the relevant documents, the lender will verify their details and sanction the loan application.

Factors affecting interest rates of a loan 

The factors affecting interest rates of a loan against property are as follows: 

• Credit score 
• Applicant’s profile 
• Loan amount and tenure 
• Property value
• Documentation and insurance coverage

Potential borrowers should check the lenders’ eligibility criteria and list of documents required for the loan against property. Notably, it will vary from one lender to another. Checking the various types of property loans offered by different lenders is important as it helps people make more informed decisions.

An important point that people must remember is that lenders check an applicant’s credit profile minutely while evaluating their application. So they must ensure that they have a credit score above 700. It would help them avail of a loan as per favorable terms and conditions. 

Before applying for a loan against property, applicants should check the pre-approved offers provided by various lenders on their official websites. These offers are immensely beneficial because they expedite the entire loan application process. To check their eligibility for such offers, they only need to enter their contact details.

To conclude, people should compare the various options, check their eligibility, and improve their credit scores before applying for a loan against property.