What is a loan against property?

A loan against property is a secured loan in which the borrower pledges their residential or commercial property to a lender such as a bank or an NBFC in order to obtain a large sum of money. The funds received from a loan against property have no end use restrictions, allowing the borrower to use them for any purpose, such as a wedding, travel, or property renovation. A loan against property attracts low interest rates, long terms, sizable penalties, and minimal documentation because lenders are less hesitant because the loan amount is secured, lowering their risk factor.

Borrowers applying for a loan against property must know about the loan against property documents, and it is in your best interest to submit these documents in the prescribed manner to avoid delays or rejections.

What are the eligibility requirements for a loan against property?

A lender requires the borrower to meet the eligibility criteria, which are in place to ensure that the borrower is financially capable of repaying the loan without falling behind on their monthly instalments. When you avail of a property loan, the terms you receive are influenced by the number of eligibility criteria you meet. Here are some of the loan against property eligibility criteria:

• The applicant must be a resident of India.
• The applicant must live in a city where the lender operates.
• The applicant must have a CIBI score of at least 750.
• The applicant must have at least three years of work experience in an MNC, a public or private sector company, or both (For salaried applicants)
• The applicant must have a business that can generate a consistent income and a vintage of at least 5 years (For self-employed applicants)

An EMI, or Equated Monthly Instalments, is the amount you will pay on a monthly basis for the duration of the loan, and your EMI includes both your principal and interest payments. During the early stages of your EMI, a large portion will be dedicated to the interest component, which will later be switched to the principal component. Borrowers should use an EMI calculator for loan against property before applying to better understand their financial capacity.  

What are the tax benefits of a loan against property?

A loan against property does not have the same tax benefits as a home loan, but you can still get a few tax breaks if you meet the following criteria:

Section 24(B)

Salaried individuals who used the funds for the purpose of purchasing or constructing a new residential property can claim a maximum tax deduction of Rs. 2 lakhs on the interest payments under this section.

Section 37(1)

Individuals who used the funds for business expenses are eligible for a tax deduction under this section. Any business expense that is not a capital expenditure qualifies for a tax deduction.