Loan Against propertyAnkit Rastogi
Definition – Loan covered by property as collateral called loan against property. It means when you approach any bank for borrowing based on your property. The market value of that property and the repayment capacity measure eligibility of loan amount. This product is available in two options.
- Term Loan (Monthly EMI with tenure up to 15 years)
- DOD ( Drop Line Overdraft)
Why this product?
Due to the complexity of the existing product in our financial system especially lending to Micro & Small Enterprises. This product provides a boost to MSMEs if they don’t meet the financial criteria of primary funding as much they need for running requirements. This product is very demanding due to the below-mentioned reasons that make it comfortable for every customer indeed.
- Made for all
- Easy to Apply
- Limited documentation
- Doorstep service
- Speed process.
- Variety of product calculation
- Structured income calculation
- Customer capability to avail
- Repayment Features
Who are the Lenders of this loan?
Loan against property is a very popular product in our financial system and there are many Banks and NBFCs are available to serve all types of customers in this segment.
Bank – HDFC Bank, Kotak Mahindra Bank, ICICI Bank, RBL Bank, Axis Bank, IDFC First Bank, Deutsche Bank, Federal Bank, Standard Chartered Bank, Indusind Bank, etc.
NBFCs– HDFC Ltd, PNB Housing Finance, LIC Housing Finance, Hero Fincorp, Fullerton India, Tata Capital Edelweiss, Indiabulls, Profectus Capital, ICICI Finance, Fedbank Finance, Clix Capital, Sriram Union Finance, etc.
What are the features of this Product?
There are two types of products like term loan (Month EMI basis) and Dropline overdraft (DOD).
- Term Loan – This product popular with the name of LAP.
- Cheaper Rate of Interest
- Quick disbursement
- Easy repayment up to 15-year tenure
- Part-payment option up to 25% of O/s amount in every year
- LTV – 40% to 100% subject to property value and product demand
- Prepayment allowed after login period and vary on institution 6 or 12 months with some foreclosure charges up to 4%
Dropline overdraft (DOD) – This product is very unique and makes the purpose to match the requirement of overdraft and repayment as term loan to easily dropdown the liability.
- Same as LAP
- Interest charge only on the amount used
- OD drop by monthly, quarterly or yearly basis with maximum tenure 15 year
- Every year OD enhancement option
- LTV – 40% to 100% subject to property value and product demand
Who can avail Loan against property?
Any citizen of India who earns money or generating income from any legal source. They should have relevant documentation which proves the repayment capacity. The person should have the property of sufficient market value according to loan value.
- Self Employed Business – Manufacturing /Trading/Retail/Service
- School – Society/ trust
- Rental Income
- Any legal business
Who can get Funds from this loan?
There are three main parameters to fund on this product.
- Repayment Capacity
- Value of the property
How to calculate repayment capacity of the borrower.
- Cash profit
- Banking ABB
- Gross profit or Gross margin
- RTR ( Repayment track record)
- NIP (Nonincome program)
- LIP ( Liquid income program)
- Low LTV
- Valuation & technical – 2 visit by different agencies
- Legal- title search and other property documents check
- Calculation sheet to check eligibility
- PD ( Physical Discussion)
- Post PD queries
- Decision- Sanction/Reject
- Agreement formalities
- Original Paper Submission
- Legal Vetting Report for original property documents
How much LTV ( Loan to Value)?
- Residential- 65% -80%
- Commercial – 50% to 65%
- Industrial – 50% to 65%
- Warehouse – 40% to 60%
- Institutions –40% to 60%
- Farm House –40% to 50%
- Hotel – 40% to 50%
- Hospitals- 40% to 50%
- Marriage Hall-40% to 50%
Special MSME products LTV upto 100%
Property documents release.
After the maturity of the loan or in case of pre-closure by your own fund or balance transfer of loan against property. You have to follow the process of the property document release.
- You have to apply for foreclosure letter to their customer care or loan branch
- After register your request for a foreclosure letter you have to wait for 7 to 10 days as per their TAT of that process.
- In that period their retention people call you and try to retain you.
- If you still wish to close your loan, they will provide you a foreclosure letter.
- Once, you got a foreclosure letter. you to submit it to the Bank/ NBFC.
Borrower Name: Mr. Radhey Shyam
Bank Name: XYZ Bank
Loan amount requires- 80 Lacs
Tenure – 15 Year
Product -Cash Profit
Net profit – 20, 00,000
Depreciation – 3, 00,000
Interest on loan- 1, 00,000
Cash profit = 24, 00,000
Existing EMI = 1, 00,000*12 = 12, 00,000
Cash Profit @100 FOIR/12 – Existing EMI
24, 00,000/12 = 2, 00,000- 1, 00,000
Monthly amount available for proposed EMI = 1, 00,000
Borrow- Mr. Radhey Shyam ( Business owner)
Bank Name- XYZ Bank
Loan application – 80 Lacs
Proposed EMI – 81,141
Rate @ 9%
Mr. Radhey Shyam requires a Business loan of Rs. 80 Lacs for his business expansion and he wishes to apply in XYZ Bank. He has to follow the below points.
- He contacts a representative or agency holder of XYZ Bank
- He asks bout ROI and other charges
- He gives his complete details about his financials
- Bank guy checks his financial eligibility for Rs. 80 Lacs and found ok.
- He prepares a complete list of documents as required by XYZ Bank
Mr. Radhey Shyam gives his complete documents to the Bank for a business loan and waits for their response.
Ms. Smita Sharma is a Bank representative call to Mr. Radhey Shyam for some details about his business profile. He also asks some points related to his end-use of funds. Mr. Smita Sharma communicates with him about Bank Procedure, the number of days to complete the process, and the ROI scheme. Mr. Radhey Sharma understands the details and confirms her about the costing scheme.
Day First:– Ms. Smita Sharma initiates for login in the system, CIBIL runs, initiates property valuation, Legal reports of the property, and verification of Mr. Radhey Shyam’s residence and office.
Day Second:– She sends the file to CPA for the calculation sheet. CPA guy will put all financial figures to the systems like a complete balance sheet and Bank statement.
Day Third:- The Credit Manager will plan for PD with Mr. Radhey Shyam after checking the CIBIL reports and Calculation sheet. The credit manager enquires all his queries related to CIBIL reports, existing loan details, and financials. He also asks about the loan amount and end-use. After PD, he visits the whole factory and clicks some photographs for his PD reports.
Day Four:– The credit manager prepares a list of queries and details as per discussion on the PD, it is called post PD documents. Mr. Smita receives this mail from the credit manager and sends it to Mr. Radhey Shyam. He receives mail and replies to Ms. Smita Sharma with complete details as required.
Day Fifth: Ms. Smita Sharma sends this mail to the credit manager. Also, she asks for the valuation report and legal reports of the property. She updates to her credit manager and he checks all details while preparing his sheet. Now he analyses the complete case with complete facts and figures. He found everything ok in this case then he recommends the case for approval authority.
Day Sixth:– If Case is approved by XYZ Bank for Rs. 80 Lacs. Ms. Smita Sharma congratulates Mr. Radhey Shyam for the loan against property sanctioned for Rs. 80 Lacs. Ms. Smita completes all agreements formalities with him and she also collects all Original Property documents from Mr. Radhey Shyam as per the list of legal reports.
Day Seven:– Ms. Smita send Original property papers to her legal agency for vetting report. In the meanwhile, she prepares his file for disbursement and gives it to the operation department.
Day Eight:– Ms. Smita receives a vetting report from legal agency and updates in his file.
Day Nine:- Now the case is Booked by XYZ Bank and initiate for disbursement.
Day Ten:- Mr. Radheshyam receives an RGTS/NEFT from XYZ Bank.
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