A loan against commercial property is a secured loan that is offered by financial institutions in the country. It is a loan offered against a commercial property. The property maybe in use, leased out, rented or vacant. However, it should be under the name of the applicant. The loan is offered at a lower interest rate as compared to a personal loan and has flexible repayment tenure. If you own a commercial property, you can apply for a loan for personal or business needs. There is a consistent rise in secured loans because it has a low interest rate, the loan can be used for various purposes and it allows the applicant to occupy their property even after the loan is availed. Before you apply for the loan, here are 4 things you need to know.
The loan amount in a loan against commercial property is high and it is important to fulfill the income criteria in order to repay the entire loan. The tenure ranges from one year to 20 years and it also varies from one lender to another. Hence, before you sign on the dotted line, you need to prepare a repayment schedule and ensure that you will be able to make the repayment in time.
Valuation of the property
When you apply for a loan against property, you hypothecate the property with the lender. Before you decide the amount of loan and the eligibility, you need a valuation of the property. The loan amount will be based on the market value of the property and not the potential future value. When you make a loan application, the lender will hire a valuer to estimate the market value of the property and the loan amount will be based on the same. Hence, if you need a higher amount, you need to hypothecate a property that has a higher value. The lender will provide up to 50%-60% of the market value of the property.
Hypothecation of the property
The loan application will be approved only after the lender is convinced that the property has a clear title and it is under your name. If there are co owners of the property, they will be co applicants for the loan. You will have the ownership of the property and you can also use the property in any way you wish to, but the property will remain hypothecated with the lender. After the entire loan amount has been repaid, the property will be transferred back to you.
The loan has a long repayment tenure as compared to any other loan. The EMIs will be spread over several years and the interest rate is low. You can use the EMI calculator to get an estimate of the EMI amount payable on the loan. A long tenure means low EMIs and it will reduce the burden of repayment.
Identify the purpose of borrowing and estimate the value of the property before you apply for loan against commercial property.