A Loan against Property can be availed for a variety of purposes ranging from home renovation to purchase of machinery as well as to meet the shortfall of working capital. It is a safe proposition for the financial institutions because they have collateral of the property as support for the finance they provide.
Salaried people opt for mortgage loans to cater to expenses like the educational needs of their children, medical expenses, home renovation, and so on. Business enterprises prefer the Loan against Property as collateral towards Business Loans and for procuring working capital requirements.
A Loan against Property is easy to procure because it is secured in nature. Financial institutions usually maintain a margin while sanctioning a Loan against Property. This margin usually ranges from 50-90% of the value of the property (also known as LTV or Loan-to-Value). This facility is also popular because the borrower can utilize the property in spite of mortgaging it in favour of the financial institutions.
The difference between a Loan against Property and a Personal Loan is that one can take a Personal Loan without providing collateral. However, a Loan against Property requires you to mortgage your property to the lender.
Another significant difference is the rate of interest on a Loan against Property is less than the rate of interest on a Personal Loan. It is primarily because of the security available to the bank. Banks have the option of selling the security and recovering their dues in case of default on the part of the borrower.
There are various types of Loan against Property. While it can be confusing for a first-time borrower, Lotus can help you through the entire process. Explore the possibilities with us.
1. Business Expansion Loans - Business entities can avail this facility for acquiring new machinery, purchase of plant, meeting working capital requirements, and invest in new technology or business. The lending financial institutions require collateral in the form of property, residential, commercial, or industrial. Depending on the nature of the property available as collateral, the lending financial institutions calculate the loan eligibility. For commercial properties, the LTV is around 55- 65%. In the case of industrial properties, the LTV reduces to 40-55% whereas the LTV in the case of residential property is in the range of 65-70%.
2. Personal Expenses - Individuals can also avail Loan against the Property for personal expenses such as medical expenses, educational expenses, marriages, travel, as well as for purchasing consumer durables.
3. Home Renovation - Usually, people do not avail this loan for renovating homes as there are separate schemes available at comparatively lower rates of interest. However, there can be circumstances when the borrower might have to resort to avail a Loan against Property for home renovation.