Getting a good loan at a reasonable interest rate is an important factor in anyone's financial journey. This can only be made possible if a person has a good knowledge of the types of loans, their interest rates, and the minimum requirements for them.

The easiest way to secure a loan is through Loan Against Property; this method gives better security to the lender as they have an asset with them in case there are any issues with loan payments. Many financial institutions prefer this method of providing loans as they have collateral with them in case of an emergency. However, the biggest qualifying factor for any type of loan is still the kind of credit score a person holds, which is true for Loan Against Property. You need to have a sound knowledge of the CIBIL scores that are considered trustworthy for a Loan against property and how to achieve those scores in case you do not match the criteria.

Read More: What is the Use of CIBIL Score?

What is a Loan Against Property?

If you have ever tried to research loans, you must be aware that different types of loans have different requirements and interest rates attached to them. If a financial institution or a bank provides you with a loan based on just your income and CIBIL Score, then they will have fewer contingencies in their hands in case you are not able to repay a loan. In contrast, if the bank gets any property as collateral, it becomes easier for them to provide a loan at a better rate of interest as they can recover the amount in case of an emergency. A Loan against property is a method of acquiring loans for personal or business use from a financial institution through pledging an existing commercial or residential property as collateral.

There are no usage restrictions imposed on a Loan against property, and you can easily use it for any personal, business, medical emergency, marriage, or educational purposes. All financial institutions undergo a few regulatory checks to ensure that the property that has been kept as collateral is legal and has all the relevant dues paid to the government so that any kind of dispute can be avoided.

Eligibility Criteria for Loan Against Property

Certain eligibility criteria must be fulfilled to acquire a Loan against property; these are a set of standards that all financial institutions follow. As you know, the CIBIL Score for Loan against property is not the only factor contributing to acquiring a good loan amount at a reasonable rate of interest; there are many other factors, like the requestor's age, locality, income, and history.

1. The requestor must be 25 years to 65 years of age and must have a CIBIL Credit score.

2. The property to be kept as collateral must be located within India only; no property of any other nationality will be accepted as collateral.

3. If you are a salaried employee, you must have a minimum monthly income of Rs. 25000. For businessmen, the monthly return is considered for the loan amount.

In addition to the above rules, you must have all the relevant documents in your possession, which must be presented when applying for the loan. If there is any discrepancy in the documents, the loan can be rejected. Any financial institution scrutinizes the property to check whether there is any dispute or whether the property has a legal construction according to government norms; if any of the criteria is not met, the Loan application can be rejected.

The basic CIBIL Score required for acquiring a Loan against property is above 700. If you have a score in the range of 750-800, you can acquire a better rate of interest for the loan. If you have a score less than 700, then it will be difficult for you to get a loan from any known financial institution. You might get a loan from a less-known lender, which will give you a loan at a higher rate of interest.

In addition to this, there are certain documents required for applying a Loan against Property-

1. Address Proofs—The property's utility bills, such as telephone bills, electricity bills, or a registered Internet landline.

2. Income Proof- The salary slips of a salaried employee or the monthly turnover of a businessman.

3. Identity Proofs- Driving licence of the requestor, Adhar Card, PAN card, passport and voter ID (if available).

4. Property Ownership Documents- the deed for sale, registry document of property, property Tax receipts and a no objection certificate in case of a Home Loan or a co-op property.

Every lender will automatically fetch information about your CIBIL score from your PAN card and Adhar card, which will be the basis for their rate of interest.

Read More: How to Improve CIBIL Score after Default

Loan against Property and Personal Loan – The Difference

A few years ago, we had limited options to secure a loan, and only a few companies were reliable in providing loans at a suitable interest rate. After the digitisation of the loan process, multiple organisations provide loans, and the competition has led to easier access to funds on the go. Usually, a personal loan is enough to meet a person's general requirements for up to a couple of Lakhs. Still, if you require a good amount of money, then you have to opt for a Loan against a property alternative.

There are certain advantages of choosing a loan against property in place of any other type of loan.

1. Longer tenure for repayment - Loans against property give the freedom of paying back the loan amount in a deferred payment system, which can last longer than other conventional methods as the lender will have the security of the property at hand in case of any misses. This is the main reason that Home loans and Loans against property are two of the most reliable and easiest ways to make payments. The longer the loan duration, the lesser the EMIs would be, which would be easier to pay month on month.

2. Low rate of interest - The rate of interest provided in a collateral-based loan is lower than that of a personal or vehicle loan, and this is also affected by a person's CIBIL Score. If you have a CIBIL score of 750 or above, then there is a higher chance of getting a lower interest rate than if you have a rate of interest of 700 or below.

3. Large Loan Amount - Financial institutions usually provide a loan amount of up to 50-70% of the property's market value, which helps the requestor acquire a hefty loan without a lot of hassle. Usually, the lender considers the location of the property and the feasibility of the future property market of the area when they provide the loan amount to make the deal future-proof.

4. Faster loan processing - In any other type of loan, the lender takes a longer time to do their due diligence on the customer before providing a large amount of money, but in a Loan against property, the scrutiny becomes much easier, and they can easily confirm the current status of the property to provide a loan to the requestor. This helps the lender and the requestor both smooth the process altogether.

Some people also have a question about whether it is possible for them to acquire a loan against property for a property that the loan itself has bought, and the answer to that is- Yes, it is possible for a loaned property to be used as collateral in case a person requires more loan on the property. This can be archived in two ways- either you can keep the property as collateral to the financial institutes and get a No objection certificate from the bank so that the property can be used for loan purposes, or you can simply take a top-up loan for the property and use that amount for your personal needs. The top-up loan amount is usually smaller than the loan against property, so getting a loan against property is advisable if you require a higher loan amount with a longer repayment period.

Read More: Here to get Loan with Low Cibil Score

CIBIL Score and Loan Against Property

A CIBIL score can be easily understood by comparing it with any scholarships in colleges; the higher a student's score is, the higher the scholarship they will get. The same goes for the credit score; a higher credit score always means a higher loan amount, longer tenure of payments, lesser interest rates, and more ways to acquire a loan. Usually, for any type of loan, you are advised to have at least a 700 credit score, and only then can you be provided with the desired amount of loan.

You need to have a good CIBIL score to acquire a good amount of a Loan against property. The CIBIL score comprises different factors that work in sync to give an individual's overall credit rating.

The Credit Information Report of India(CIR) keeps an impartial data record for every individual and tracks their credit history. The best way to ensure that a person's credit score is always sufficient is to make payments on time and keep missed payments as low as possible.

There are some important parameters of the CIBIL score which are considered while calculating the actual scores

1. Repayment History- This is the largest contributing factor for the CIBIL score and every person must make sure to make the payments on time in all types of loans, credit cards or consumer finances. In case a person is not able to pay the full amount of a loan EMI in a month, there are still provisions to get on a payment plan for the remaining amount which divides it into a smaller amounts for that month which can be discussed with the lender beforehand. This parameter holds 30% of the overall Credit score calculation.

2. Credit Mix and Duration- The types of credits a person has also an impact on the CIBIL score, if the credit history is full of different types of loans like home loan, consumer finance, credit card and all the payments are on time during the agreed tenure then this can help improve the score as well. This parameter holds 25% of the overall Credit score calculation.

3. Credit Utilization- There is a certain limit to the amount of credit a person can have in his/her lifetime and that is calculated at different stages of their lives by calculating their income and eligibility for different types of credits available. If the credit utilization of a person is higher than it shows a bit of a derogatory picture as some people use one loan to pay off the other and that is not considered a good credit decision, whereas, if a person has a limited credit utilization and on time payments than the credit score will automatically improve. This parameter holds 25% of the overall Credit score calculation.

4. Number of credit Enquiries- If a person makes a lot of credit enquiries in a month and the lenders or financial institutions refuse to provide the amount or the product to them then this also leaves a black mark on the credit score as it decreases the credibility of the person. This parameter holds 20% of the overall Credit score calculation.

Conclusion

It is important to be on top of your finances and ensure that your credit history does not adversely impact your future credibility. A Loan against Property is a good way to acquire a higher loan amount for a longer duration of time. Still, at the same time, you should ensure that your CIBIL score is up to the mark so that you can make the most of the opportunity and get a loan at a lower interest rate.

FAQs

1- What is the minimum legal age for having a CIBIL score in India?

The CIBIL score is a credit score depicting a person who starts as soon as he/she turns 18 and is eligible for a PAN card.

2- Are the loans against property at a floating rate or fixed rate?

The type of interest rate depends on the financial institution that provides the loan, and this is decided at the time of taking out the loan itself. Some organisations offer a floating rate, whereas others have a fixed rate.

3- What happens if a person is not able to pay the loan taken against property?

If a person cannot pay the EMI of the loan taken for a longer period, the lender has the right to seize the property and auction it to recover the loan amount.

4- Does EMI's of Loans against property affect the CIBIL score of a person?

Yes, just like any other loan, a Loan against property has a direct impact on a person's CIBIL score, as nonpayment can decrease it, while on-time payments can increase it.

5- What is the difference between a personal loan and a loan against property?

A personal loan is provided by the lender without any collateral contingency. It has a fixed rate of interest and can be used for a smaller amount of money. A Loan against property can be used to avail of a higher loan amount by using the property as collateral to the lender and can also be paid in a longer tenure due to the asset being used as security.