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01 DECEMBER, 2021
A loan against property is a secured loan, where you need to furnish collateral as security. Collateral for loan against property simply means a property that you can pledge to avail a loan. Having collateral reduces the risk for the lender and assures them that they won’t lose their money even if you default in payment. If you do not make the payment, they can liquidate the collateral to recover their loan amount. On the other hand, by submitting collateral you can avail a higher loan amount at competitive interest rates. But have you ever wondered, what properties can you furnish as collateral? Here’s your answer.
Types of Properties that Can be Used as Collateral
It is the most common property type that lenders accept as collateral for a loan against property. You can pledge any residential property as security to avail a loan. It could be the one that you have rented or the one that is vacant at the present moment. You can even pledge the property you are currently residing in as collateral to avail a loan against the property. The lenders usually prefer residential properties as collateral as it is easier to liquidate, and their value typically does not fall over time.
Similarly, you can pledge a property being used for commercial purposes to avail a loan against it. The commercial property can be a shop, shopping complex, or office. It can be rented out or a vacant commercial property. You can also pledge your industrial property to avail a loan against property. Compared to a residential property there are more chances of you getting approved for a high-value loan and lower interest rate if you pledge a commercial property. However, when you are availing the loan, you must have a clear title of the property, and there should be no dispute on the property ownership.
Having said that, a property that has multiple owners can also be used as collateral for a loan against property, subject to certain conditions. Usually, lenders approve only such properties that are jointly owned by:
You can also use a plot of land as collateral for a loan against property. However, the land should not be agricultural land. Moreover, lenders also require the land to have clear demarcation on their boundaries. They can evaluate the land to ensure that it meets the minimum eligibility criteria to be used as collateral.
To Sum up
Before accepting any property as collateral, the lender evaluates it to determine its value. The lender can also take professional help from legal and technical advisors for the valuation of the property. The property should be free from any disputes and should be valued higher than the loan amount you need. So, if you own property, leverage its value and apply for a loan against property. However, ensure to check your affordability with the help of a loan against property calculator.
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