How to Use Loan Against Property to Fund Your Business

Investing in or starting off a new business venture from scratch can prove to be a difficult task financially. In general, first-time entrepreneurs don’t ever find themselves eligible for business loans. However, one great source of funding can be a loan against property (LAP).

As a Loan against Property is a secured loan, it requires you to keep your residential or commercial property as collateral to get monetary assistance from financial lenders. The availed loan amount can be utilized for your business start-up or business expansion. The loan also has attractive repayment options.

The following are some reasons as to why you should opt for a loan against property to fund your business:

  • The ability to avail larger loan amounts
  • Quicker loan approvals than personal loans
  • Getting the loans processed at nominal interest rates
  • Ability to align the loan amount to the needs of the business

The Loan Amount

The maximum loan amount that can be availed through LAP depends on the following two factors:

  • Property Value: Financial lenders offer Loan against property in the range of 60% to 90% of the property value.
  • The Loan Repayment Capacity: Lenders usually evaluate the loan repayment capacity of the individual strictly. While applying for a LAP, if you have already earned a certain rental income from the property, then it can serve as a bonus. However, you must come up with a very good proposal to convince the lenders that you can repay the loan amount within the given tenure period.

The Loan Type

LAP is available in the following two types:

  • Term Loan: In this case, the financial lender disburses the complete loan amount to your bank account. You will have to start servicing the instalments right from the coming month.
  • Overdraft: In this case, the financial lenders will sanction a credit limit. You can only withdraw amounts up to the sanctioned limit. The benefit of this facility is that you end up paying interest only for the credited amount. Such overdraft accounts are subjected to review on an annual basis.

Which one is better?

If you prefer to reduce the liability over a period of time, then you must opt for the term loan as you will repay the loan amount in instalments.

However, if you wish to save on the interest paid, then you must go with the running account overdraft facility. You can easily deposit as well as withdraw as per the credit limit. Interest is applicable only for the utilised amount. Therefore, you end up saving on interests in an overdraft account.

Few financial lenders even offer a reduction of the overdraft limit in terms of equal proportions over the loan repayment tenure period.

The Loan Repayment Tenure

You can repay your LAP amount over a period of 20 years through EMIs. Such a long repayment tenure period makes it easier for the applicant to pay the instalments when compared to Personal Loans. The repayment tenure period in the case of personal loans is a maximum of 60 months.

You can utilise the availed loan amount for making sound business decisions. The lengthy repayment tenure period also works in your favour. By leveraging your property, you can plan the future of your business without any stress as you have a good amount of time to repay the loan. For instance, a Loan against Property from a majority of financial lenders comes with a repayment term period of up to 20 years. As you have ample time to repay the loan amount, you can easily borrow the loan amount depending on your business plans.

For example, let us consider that you decided to open up a new branch office in a new city to expand your business. This will involve construction, legal proceedings, as well as recruitment. This move will surely reap benefits, but only over a period of time. As you have a longer repayment tenure, your EMI will be small and hence you can finance both your business as well as those EMIs quite easily. After you break even, you can choose to prepay major portions of your loan amount so that you can come out of debt quite early.

 

6 Tips to Prepay Home Loans Faster

In pursuit of owning our dream home, many of us direct all of our life’s earnings towards this one cause. We strive hard to get the best home loan rates to fund our property purchase. A home loan is a long-term commitment that can range anywhere from 10 – 30 years or longer. That’s why another essential factor that most overlook is to clear this loan as soon as possible. If you’re able to smartly pay off your housing loan faster, you would be free of the financial commitment quicker.

Following are a few tips that you can use while planning a home loan:

1. Opt for a Home Loan Which Allows for Part Payments

The home loan which you avail is based on your creditworthiness as well as on your income. However, it is quite natural for you to expect that your income will increase in the future. This, in turn, increases your affordability. Therefore, you can choose to avail a loan for a maximum tenure and repay the same before the loan tenure period. Always try to opt for financial lenders who offer prepayment feature so that you can pay more than the required monthly payment whenever possible.

2. Always increase your EMI amount Whenever Your Salary Increases

Whenever you get a salary hike, always aim to increase the EMI of the availed home loan. This will help you to reduce your loan tenure period along with the interest rates. You can choose to contact your financial lender so that they can restructure your existing loan based on your current salary. This step will also boost & strengthen your creditworthiness.

3. Invest Specifically with the Aim to Prepay the Loan

Another major dilemma of any homebuyer is to choose between investing and prepaying the home loan with his/her savings. Let’s take an example to analyse the problem. Consider two clients named Ravi & Samir.

Let’s assume a scenario wherein Ravi is paying an EMI of ₹40,000 towards his Home Loan. The applicable interest rate is 10.75% and his salary is around ₹60,000. Also, let us assume that he is able to save around ₹10,000 on a monthly basis. If Ravi chooses to invest his savings in PPF, then he can expect a return of around 8.5-8.7%. However, if he directs this same amount towards his EMI on the home loan, then he can save the 10.75% interest on this amount. It only makes sense to invest in those financial products which generate returns greater than the interest rate applicable on the Home Loan.

Now let’s assume that Samir is paying an EMI of ₹55,000 towards his loan. Prior to availing the home loan, he had invested in a Mutual Funds Fixed Deposits of a bank. The returns earned through Mutual Funds are around 10% on an annual basis. The client also enjoys returns of around 9.75% on the FDs.

By applying the same logic of Ravi, it makes sense for the Samir to liquidate his existing investments and try to prepay the availed Home Loan. By doing so, he can generate indirect returns which are equivalent to that of the home loan interest rates through savings.

4. Try to reach the Principal Amount as Early as Possible

 

During the first few years, the loan borrower is just paying towards the interest without causing any substantial reduction in the principal amount. Therefore, try to make the partial pre-payments as early as possible so that it helps to reduce the interest amount much faster. After you hit the principal amount, you can observe the difference in the applicable interest rate and the remaining amount.

5. Always keep 3 Months of EMI Payment in your Account

This is essential for paying your EMIs regularly. This strategy can help you out in case of any unforeseen financial emergencies. This will also make sure that you do not default on your payments. By having an amount equivalent to three months of EMI, you can get some breathing space.

6. Use your Fixed Deposits

You can also make pre-payment towards your loan if you possess fixed deposits of around six times your salary. A fixed amount gets you interest of around 6-7% on an annual basis, while you might be paying around 9.65% interest towards your home loan. It makes no sense to block any money for earning lower interest rates. Rather, you can use that amount to reduce your financial debt.

 

How to Get Loan Against Property Even With a Bad Credit Score?

It’s not surprising that many people are in a financial crunch and looking for loans in the current COVID-19 pandemic. Whether its job losses for the salaried or impact on business for the self-employed, the situation is tough for so many out there. If you’re facing an emergency and in dire need of funds, then you can consider availing Loan Against Property (LAP).

An LAP is a much better choice than a personal loan as you don’t have to stress even if your credit score is not good. This is because unlike a personal loan which is an unsecured loan, a loan against property is a secured loan and it involves collateral. While availing this loan, you can mortgage your commercial or residential property to a lending institution as security towards the loan you have applied for.  This loan is assessed based on your property value as per the current market rate. Another major benefit of opting for LAP is that you can avail a higher loan amount in comparison to any other regular loan.

What’s the Least CIBIL score needed for a LAP?

A CIBIL score can be represented as a three-digit number ranging from 300 – 900. The Credit Information Bureau assigns it to every individual based on the CIR, or Credit Information Report. Credit utilization, repayment history, the total tenor of credits, credit mix, and the number of credit inquiries are the parameters used for calculating the credit score of an individual.

Generally, lending institutions prefer borrowers having 750 or higher credit score while approving a loan. However, as Loan Against Property is a secured loan, the lender has lower risks if the borrower fails to repay the loan amount. Hence, this loan is sanctioned even if the applicant is on the borderline. For example, many popular banks in India such as SBI, HDFC, ICICI grant LAP loans to individuals whose credit scores are in the range of 650, and some lenders can consider even lower scores.

Shed your worries aside if you are wondering whether your bad credit score would be taken into consideration or not. Since a Loan Against Property is a secured loan, the banks will not give much weight-age to your CIBIL score. As the interest rate over a LAP is less, there are chances that you may be charged a higher rate of interest over a LAP if you have a bad credit score. It’s always advisable to start improving your credit score by paying your EMIs on time.

Furthermore, you can improve your chances of securing a Loan Against Property by following these simple tips –

  1. Additional Co-applicant:Adding a co-applicant with a good credit history in your loan application can boost your chances of securing an LAP. This is because you are providing additional assurance to the bank. If your spouse has a good credit score, you can add him/her as your co-applicant.

 

  1. Guarantor for borderline cases: If your CIBIL score is on the borderline, then financial institutions may generally approve a loan against property for you without any hassles provided you have a guarantor having an excellent credit history.

 

  1. Seek Lower LTV: LTV or Loan to Value denotes the amount a borrower can get against the property from a financial institution. An LTV of 80 percent indicates that a buyer will have to shell 20 percent property value and the rest would be financed by the financial institution. If you have a bad credit score, then you can consider lowering the LTV from the lending institution.

 

  1. Approach Housing Finance Companies (HFCs): You can turn to HFCs if you have a low CIBIL score. Selected HFCs offer mortgage loans to individuals having a bad credit score. However, the drawback is that the application processing takes a lot of time and the interest rate may be quite high.

 

There are plenty of options available even if you have a bad credit score and want to avail a loan against a property. However, keep in mind that improving your credit score gradually will certainly prove to be beneficial to you in the long-run.

 

 

Home Loan Borrowers Aged 45 & Above: Things to be Aware Of

Over the last 20 years, the applications’ for home loans have witnessed a tremendous transformation from individuals. The loan eligibility of an applicant is dependent on various factors such as employment history, creditworthiness, payment capacity, life stage, type of property, and so on. However, the age of an applicant is the most important factor which binds all the factors. The age group of home loan applicants can be broadly classified into three groups such as those in their 20’s, 30 to 45 years, and those above 45 years.

Individuals of the current generation earn a significant amount of higher salary when compared to their predecessors.  As a result, they represent a major chunk of the population who seek home loans. Individuals above the age of 45 years, also referred to as late home loan seekers also have good options. This permits them to work out their loan repayment tenure period.

Following are some factors which a late home loan seekers aged above 45 years must consider while availing a home loan:

  1. Loan Options: When an applicant is greater than 45 years of age, a lot of financial institutions and lenders are quite sceptical in offering them a loan. Therefore it becomes quite important to do a greater depth of research before availing the loan. Even a minimal small differential of 50 basis points can contribute towards making a huge difference.
  2. Loan Tenure: In general, financial institutions such as banks always restrict the home loan repayment tenure to the retirement age of a person. The standard age limit for retirement is set to be 60 years. Because of this reason, younger individuals can get a home loan with a 25 to 30-year tenure period whereas individuals aged above 45 years can get a home loan only up to their retirement age.
  3. Income Band: The outcome of any home loan application is greatly dependent on the individuals’ quality of income, source of income, as well as stability of income. On a general note, an individual employed by highly reputed organizations can avail higher loan amounts based on the stability of his or her income. Financial institutions usually categorize certain sectors as stable or risky. Therefore, applicants working in stable sectors can easily avail home loans when compared to those working in risky sectors
  4. Down Payment: A higher down payment amount usually works out well for individuals above 45 years of age. It is usually assumed that the late home loan applicant would have a significant amount of savings so that they can reduce their borrowings. Therefore, before jumping to any conclusion, it is much better to compare the different interest rates the individual earns from their existing investments against the interest on home loans.
  5. Credit Worthiness: The credit score of an individual is amongst the first things the financial institutions go through before processing the home loan application. This is quite essential as it illustrates the expenditure, savings, as well as the creditworthiness of an individual.
  6. Co-Borrower: As it is assumed that the capacity of an individual to repay a financial debt is inversely proportional to their age, it is better that one applies for a joint home loan account with growing age. This also contributes towards lowering the liability of higher EMIs and also offers certain tax benefits.

The addition of a co-borrower for a home loan application usually increases the individual’s eligibility. This is more important if the applicant falls in a higher age category and when the home loan amount is considerably high. Banks usually extend the cut-off age limit in case a co-borrower is present for a home application. This also increases one’s chances of getting a home loan amount with a longer repayment tenure period. It is also much better to add a younger co-borrower in case of a joint home loan application.

Conclusion

There is no doubt that the age of the applicant is quite an important factor when determining the eligibility for applying for a home loan. Individuals who fall into higher age brackets must always focus on the above-mentioned factors in order to optimize their loan tenure and loan eligibility. The aging individual must always opt for choosing a financial lender that is quite liberal in considering the applications of late home loan seekers.

 

5 Reasons a Top up loan is better than a new Personal Loan

Without a doubt, buying a house has always been one of the significant financial investment that anyone can take. A majority of the youth today already have home loans running in their names. However, imagine the scenario where you are going through a financial crisis while actively repaying an existing home loan. There are several expenses that an individual incurs in his or her lifetime such as emergency medical bills, tuition fees and so on. A good number of us in such situations always turn toward personal loans. Prior to making any hasty decision, do consider taking up a top-up loan instead of a new personal loan.

What is a Top-Up Home Loan?

In case you have an active home loan, then your lender might allow you to borrow extra funds on top of your existing loan. Such an additional loan offered by your bank is known as “Top-up Loan”. Any lender will offer top-up home loan only to those customers who have a very good payment history. So, in case you are a customer who is very good in making prompt payments, then you can definitely consider this option.

How is Top-up Loan better than Personal Loan?

Following are 5 reasons why getting a Top-up loan is better than a availing a new Personal Loan:

  1. Low Interest Rates: As the top-up loan is taken over an existing home loan, the interest rate charged on this loan is quite less when compared to a new personal loan. A personal loan usually comes with a high interest rate as it is an unsecured loan. As top-up loans are offered to customers who have availed existing home loans, you will not have to offer any additional security as your home is already kept as collateral. Hence, with top-up loans, you can enjoy the benefit of paying lowest interest on the principal amount.

 

  1. Flexible Loan Tenure: Top-up loans usually come with a very flexible loan repayment tenure period. As home loans are offered for tenures of more than 20 years, taking up a top-loan will provide you an extension on the loan tenure period. In general, a longer tenure period is offered on top-up loans when compared to personal loans. This difference makes availing a top-up loan more attractive when compared to personal loans.

 

  1. Tax benefits: Once you get your top-up loan, you can utilise the funds for any pre-defined reasons such as home expansion and renovation or to avail certain tax benefits. You cannot do the same through a personal loan. Therefore, it is always better to know about the tax benefits which you can receive from your lender before opting for a personal loan.

 

  1. Processing time:  The time required to get your personal loan processed can be quite long. The lender will have to go through your documents, understand your requirement and your profile, and even verify the submitted documents. This makes the process a bit lengthy. However, in case of a top-up loan, the lender will already have your verified documents and details, which in turn reduces the processing time.

 

  1. Pre-payment penalties:This factor must be considered while comparing top-up loans and personal loans. In case of top-up loans, the customer will not be levied any penalties for pre-payment of the loan amount according to a mandate issued by the RBI. The same is not the case with a personal loan. If you wish to prepay your personal loan amount prior to the stipulated tenure period, the lender might charge you a prepayment penalty. The penalty is usually around 3-4%.

 

Always make sure to go through these differences while comparing top-up loans and personal loans before incurring any debt.

 

 

When Should You Consider Loan Against Property Over Personal Loan?

Sometimes, we encounter situations in life when we need instant monetary support. Most of us turn to banks for the funds we seek to meet the immediate requirement. Loan Against Property and Personal Loans are the two popular credit options offered by banks. However, you need to be careful before choosing an option in order to pick one which is most advantageous for you.

Comparison between Personal Loan and LAP

A Personal Loan is an unsecured loan that you can avail from a bank for personal use. Usually, these are short-term loans that you can use to meet wedding expenses, set up your business, construct a house, or pay off your debt.

Loan Against Property is a secured loan where the lender lends you money and holds your property as security until you repay the entire amount back to them. It is considered to be the second cheapest next to home loans in interest rates. You can utilize the funds for any purpose such as higher education, expanding your business, medical emergency, home renovation, or for any other purpose.

Reasons to avail Loan Against Property rather than Personal Loan

  1. Higher loan amount

As personal loans are unsecured, the loan amount would generally be limited. It is usually estimated based on your repaying ability and your income.

You can get a higher loan amount if you are keeping your property as security over your loan with the lender. If you are looking for a higher loan amount in comparison to what you will receive through a personal loan, then LAP would be the most convenient option.

  1. Lower Interest Rates  

The interest rate on LAP is lower in comparison to a personal loan. This is because the risk of defaults is lowered. The interest rate generally varies from 9% to 13%.

Personal loans attract higher interest rates as there are risk factors associated with it. The interest rate is fixed depending on the credit score, employment, income, and location and usually varies from 10.5% to 23%.

  1. Longer Loan Tenure

LAP provides you longer tenure to repay the loan amount that you have borrowed whereas the repayment tenure is lesser in case of personal loans. Generally, the repayment tenure is 15 years in the case of LAP and 5 years in case of personal loans. If you have the resources to pay back the loan quickly, then you can opt for personal loans. However, if you need lower EMIs that won’t be a burden, then opt for Loan against property.

 

Bank Name

Rate of Interest (%) Tenure
LAP Personal Loan LAP Personal Loan
Kotak Mahindra Bank 9.25-11.50 10.75 10 years 12-60 months
HDFC Bank 8.75-10.40 10.99-20 15 years 12-60 months
Axis Bank 11 4.35-16.35 10 years 12-60 months

 

  1. Loan Processing   

This is where personal loan shines in comparison to LAP. Processing is quite quick in case of personal loans. The amount is disbursed almost immediately soon after the approval from the lender. The repaying ability, credit score, and income of the borrower are the major criteria considered while loan processing.

The banks do a careful analysis of the property if a borrower is interested in availing LAP. This involves performing legal checks, internal checks, and also evaluation of the property worth. It would take around a month to obtain approvals. If you can afford to wait, then LAP would be worthwhile.

  1. Credit Score

A personal loan is an unsecured loan that attracts a higher interest rate in comparison to LAP. Your eligibility for a personal loan will mostly depend on your credit score.

In the case of LAP, your credit score will not have too big of an impact as you’re providing your property as security. If the tenure of LAP is longer than the personal loan, then it can improve your credit score. In both cases, the key to improving your credit score is consistent payment.

Which one is better?

You need to consider your precise financial requirement before choosing any loan option. How much money you require, what is the time-frame of repayment, monthly EMIs, and urgency of funds – you should consider all these before finalizing on the type of loan to go for.

 

 

 

How a 30 year old company is using technology to transform itself and be future ready!

1991 was a watershed year for the Indian business ecosystem. An acute balance of payments crisis ushered in a slew of reforms which was to change the economy forever.

It was in this environment that Andromeda started off in 1991. At that time, the loan distribution business was small. A few foreign banks had started off with the credit cards business.  But Indians were still conservative about credit and would save to finance their consumption needs. The millennials were about to change all of this. The next 30 years would lead to a credit boom in the retail segment enabling Andromeda to become India’s largest retail loan distributor. Over this period, Andromeda has built an extensive brick and mortar network spanning 100+ locations, 200+ branches, 1500+ employees and 3000+ partners.

The next 30 years are going to be transformative for the Indian lending industry. Retail lending lending as a percentage of GDP is expected to treble from its current levels driven consumerism and favourable demographics. According to a report by ICICI Bank, the country’s second-largest private sector lender and ratings agency CRISIL, the retail loan book of financiers in India will double to Rs 96 lakh crore by March 2024 compared to Rs 48 lakh crore in March 2019.The growth in retail loans will be driven by a strong demand for housing loans, unsecured loans (personal loans and credit cards) and loans to micro, small and medium enterprises. Mortgage loans, including normal and low-cost housing loans as well as loans against properties are expected to double to Rs 46.1 lakh crore in the next five years. Similarly, unsecured loans are likely to more than double to Rs 13.8 lakh crore. The report also sees a two-fold rise in MSME (micro, small and medium enterprises) loans touching Rs 13.2 lakh crore. Vehicle loans could also nearly double to Rs 17.5 lakh crore, by the financial year 2024.

Such massive growth can be managed only by leveraging smart technology and distribution muscle. As the lending industry rapidly digitizes, Andromeda has learned to move with the times and align with the latest trends in technology. Indeed, Andromeda prides itself on its ability to keep learning and tramsforming itself to meet the needs of its customers while playing on its key strengths of having a massive physical distribution network. The elements of Andromeda’s digital transformation journey comprise a re-branding exercise, building a central technology platform from scratch, using data and analytics extensively, developing a robust web-based front-end where partners and customers can interact seamlessly and also creating a strong communication strategy to convey these transformative elements to our stakeholders. This journey will enable Andromeda to become more scalable, process oriented, data rich, efficient and make the company future ready!