A Loan Against Property (LAP) is a valuable financing option for individuals who need substantial funds without selling their property. By using either residential or commercial property as collateral, you can quickly secure the required funds.
However, the loan amount you can borrow depends on several factors, one of which is your property’s value. The higher the value of your property, the higher the loan amount you may be eligible for. So, how can you increase your property’s value? Don’t worry. In this article, we discuss how to improve the property’s value for a higher loan amount.
But first, let’s understand the factors that affect your LAP loan amount.
Factors affecting the Loan Amount for a Loan Against Property
Several factors influence the LAP loan amount you can borrow when applying for a loan against property. These include-
1. Property value
The current market value of your property is a key factor. A higher property value typically allows you to borrow more. Lenders usually offer loans up to 70%-75% of the property’s market value, though this can vary based on the property type.
2. Loan-to-value ratio
It is the percentage of your property’s value that a financial institution is willing to extend as a loan. For example, if your property is valued at Rs. 1 crore and the lender offers an LTV of 60%, you can borrow up to Rs. 60 lakh. This ratio is influenced by the type of property and the lender’s policies.
3. Creditworthiness
Your financial history and credit score play an important role in determining the loan amount. A higher credit score indicates a reduced risk for the lender, which may result in a higher loan or more favourable terms.
4. Property type
Residential properties usually attract higher loan amounts than commercial properties because they are considered less risky and more stable over time. Commercial properties may also have a lower LTV ratio.
5. Location of the property
The location of your property highly impacts its value. Properties in prime or rapidly developing areas typically have greater market values, which can lead to a higher loan amount. Lenders tend to favour properties in urban centres or well-connected suburbs.
How to Increase Property Value for Loan Against Property
As discussed earlier, the location of your property is a crucial factor when securing a loan against property. But what if your property is situated in a semi-urban area? How to improve your property value, then? Here are a few ways to do it.
1. Renovate and repair
Small renovations and repairs can significantly boost your property’s appeal and value. Focus on high-impact areas like the bathrooms, kitchen, and flooring. Addressing structural issues like leaks or cracks can also prevent further damage and depreciation.
2. Maximise usable space
If there is underutilised space, transform it into functional areas. For example, vacant rooms can be turned into study or storage areas. If you have unused outdoor space, consider creating a kitchen garden or a small outdoor seating area.
3. Enhance curb appeal
The exterior of your property shapes the first impression. Simple improvements, such as repainting the facade, landscaping, or upgrading the pathway, can enhance its attractiveness and overall market value.
4. Upgrade utilities and infrastructure
Nothing impacts a property’s value more than outdated fixtures and systems. Consider modernising utilities like plumbing, electrical systems, and HVAC units. Installing energy-efficient solutions, like solar panels or LED lighting, can also make your property more appealing to both buyers and lenders.
5. Regular maintenance
Even a beautiful property will lose its value if it suffers from issues like water damage, pests, or mold. Consistent maintenance is key to preserving its condition and preventing future depreciation. Keep your property well-maintained to ensure its value remains high.
Benefits of taking a Loan Against Property
Borrowers enjoy the following benefits by taking a loan against property.
- Since the loan is secured by property, it usually has lower interest rates than unsecured loans like personal loans.
- A loan against property offers a larger loan amount, as the property acts as collateral. Lenders offer loans of up to INR 10 crore.
- LAPs often come with longer repayment periods, up to 240 months, making monthly EMIs more manageable.
- There are no restrictions on how you use the funds, whether for personal needs, business expansion, education, or medical expenses.
- While your property is used as collateral, you retain ownership and can continue using it during the loan tenure, unlike selling it to access funds.
Wrapping up
Let’s quickly recap how to increase the value of property. It involves renovations, regular maintenance, converting unused spaces into functional areas, and upgrading to modern equipment. These improvements can help boost your property’s value, potentially leading to a larger loan, lower interest rates, and more flexible repayment terms.
If you are considering applying for a loan against property, Tata Capital offers competitive LAP options with attractive LAP loan interest rates and flexible repayment terms. Whether you’re looking to meet business needs or personal requirements, Tata Capital can provide customized loan solutions that align with your financial goals.
FAQs
Property value is determined through a professional valuation process that considers factors such as location, condition, age of the property, and current market trends.
At Tata Capital, we offer a loan against property with competitive interest rates starting at just 9% per annum.
A higher CIBIL score can help secure a loan against property with better terms, such as a longer repayment tenure and lower interest rates. Maintaining a good credit score generally increases the chances of loan approval.
A loan against property can be a wise financial move if you need a significant amount of funds quickly without selling your valuable assets. However, it's important to assess your ability to repay the loan, as failure to do so could result in the loss of your property.
16 December 2024
5 mins read
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