A loan against land is an excellent instrument for people to fulfil their financial requirements. By taking a loan against your property, you can utilise its value and pay for your bug expenses. At the same time, you can continue to use your land and repay the loan over time. But there are some things you must keep in mind before availing of a loan against your land which we will explore in this blog. So, read on.
What is a Loan Against Land?
A loan against land or property is a secured loan that a person avails of against their property. Borrowers pledge their property as collateral to the lender to avail of this loan. The lender can claim the property if a borrower fails to repay the loan in full.
What are Some Requirements to Qualify for a Loan Against Land?
Requirements to qualify for a loan against property vary depending on the lender you avail the loan from. However, here is a general checklist of requirements that you must meet when applying for a loan against your property:
A. You must have undisputed ownership of the property.
B. You must ensure there are no prior legal or financial disputes related to your land.
C. Most lenders offer loans against agricultural land, plots, and commercial, residential, and industrial properties. So, you must ensure your property falls under any of these categories before applying for a land loan.
D. You must have a stable income and meet the minimum monthly income requirements mentioned by the lender.
E. You must meet the minimum and maximum age limit.
F. You must also have a good credit score and ensure no outstanding loans.
What are 5 Important Things to Consider Before Applying for a Loan Against Land?
Here are some things you must consider before applying for land financing:
1. LTV (Loan to Value) Ratio or Loan Amount
The loan amount you can avail of depends on two factors – the value of your property and the LTV offered by the lender. For instance, if your farmland has a market value of Rs 5 crores and the lender gives loans at a 90% LTV ratio, you can avail loan against agricultural land of up to Rs 4.5 crores.
The lenders assess the value of your property when you apply for a land loan and offer you the loan amount based on that assessment.
2. Interest Rate
As you know, lenders charge interest for loans they offer. And it varies from lender to lender. The exact interest rates on loans against a property you will get depend on many factors, including your credit score, loan amount, income, etc.
Interest rates on loan against property decide the amount of EMI you will pay towards repaying the loan. Some lenders also offer flexi-EMI options so you can pay smaller EMIs initially and then gradually start paying more as you attain financial stability.
So, you must research your options, compare offers from different lenders, and only then apply for a loan against the land.
3. Loan Repayment Tenure
Once you receive the loan amount, you will have to repay the loan with interest within the repayment tenure. Most lenders in the country offer repayment tenures of up to 20 years. But a longer loan term does not always benefit the borrowers. While they make EMIs more affordable, you end up paying more money as interest which increases the overall cost of borrowing a land loan.
4. Documentation
Today you can apply for a loan against your land online through your lender’s website. So, you do not need to go through lengthy paperwork when applying for a loan. In most cases, you only need these documents ready to complete the KYC process:
A. The deed of your property
B. Application form
C. Photograph
D. Signature verification
E. Photo ID proof
F. Address proof
G. Income proof
H. Income proof
I. Salary slips
5. Additional Charges and Penalties
Apart from looking at interest rates, you must also look at the fine print for any additional charges you will bear when availing of a loan against your land. Most lenders charge a prepayment fee and charges, statutory charges, stamp duty, etc. You must compare these charges from different lenders as they add to the overall cost of borrowing.
Besides, also keep note of the penalties attached to your loan. In most cases, lenders impose penalties on late EMI payments. Some lenders also charge a penalty if borrowers pre-pay their loan before the repayment tenure ends.
FAQs on Loan Against Land
What are the factors that affect loans against property eligibility?
The factors that affect loans against property eligibility include the applicant’s employment status, applicant’ income, property value and legal status.
How much loan can I get in a loan against property?
You can get a loan amount of up to 60% to 70% of your property’s market value. This is subject to your repayment capacity and income.
What is the minimum CIBIL score for a loan against property?
While the minimum CIBIL score can vary with lender, a score of 650 is typically usually preferred.
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09 October 2024
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