Loan against commercial property: What is it and the associated interest rates and charges

This is a form of secured loan whereby the borrower has to keep his property as collateral to the lending party. Usually, the amount of borrowing is high since the property market is in boom and the amount of loan is based on what value the property can fetch in the market. You can even be provided a loan with a low interest rate, since you are transacting your property in this case. If you are unable to repay the borrowed amount, the lender has the right to sell your property and recover the outstanding dues.

The customers are also at an advantage since the loan against commercial property interest rates is low in comparison to other forms of loans. For instance, a personal or education loan, where you will end up paying a high amount in the form of interest charges. You are not required to specify for what purpose you are obtaining this loan as you are submitting. The commercial property documents in the lender’s custody. To obtain this loan, you must present all your loan against property documents.

What are the associated interest rates with LAP?

  • Fixed interest rate– When you obtain a loan against commercial property, you have to account for EMI payments. It consists of the principal amount as well as the fixed-rate interest component. The amount of EMI also remains the same for the whole repayment period.
  • Floating interest rate– This rate is dependent on the prevailing market conditions. When you are paying your EMIs with a floating interest rate, the amount of it will keep changing. The lending party would use an index rate established by the Reserve Bank of India (RBI). For calculating the EMI payments. In case the index rates are increasing, the amount of EMIs will also increase for you.

By the borrowers to keep a track of their periodical EMIs and the associated floating interest rates.

Charges for loan against commercial property

  • Legal charges- All your property documents are verified by the lender before finalizing the sanctioning of funds in your name. The companies usually send an executive to the property that is on collateral and also evaluate its real worth. These charges usually vary from INR 5000 to INR 10,000.
  • Processing charges- A one-time processing fee is charged by the lender whenever you apply for a loan against property. These charges are levied to recover the administrative costs, carrying costs, and costs related to the valuation of the property. The charges for processing can vary from 0.5% to 2% of the amount you have sought for the loan.
  • Foreclosure charge- In case the borrower makes the payment of the whole amount before the due dates, a foreclosure charge is levied. In this scenario, the lender can charge 1% to 4% of the loan amount as foreclosure charges. Generally, the lenders have a lock-in period within which you cannot close a loan.

loan against commercial property Changes:

  • Part-prepayment charges- It is yet another charge that the lender might impose on you. On the part prepayment initiated by you. This levy varies from one lender to another and some may not even charge.
  • Loan rescheduling charges- Sometimes you do not have enough finances to pay for the EMIs. You can thus extend your loan repayment period. Which will also reduce the amounts of monthly installments you pay to the lender. For this facility, the lender levies a rescheduling charge.
  • Penalties- In any case you fail to pay your EMIs on time, you will be subjected to payment of penalty charges. The amount of penalty will be 2% (monthly) or 24% (yearly) on the due amount.
  • EMI bouncing charges- Due to the non-availability of funds in your bank account. If the cheque signed by you is bounced, the lender will impose a bouncing charge.

Loan statements, and for issuing the duplicate No Objection Certificate (NOC). Before applying for this loan, you should also check all the loan against property documents. And whether you are eligible to obtain this loan.

Remember that as a consequence of complete non-repayment, the lender is eligible to make loan recovery through mortgaged asset auction. It is thus always advisable to make your loan against properties repayments in time. Notwithstanding this, it is also quite a financial discipline to maintain timely repayments for the purpose of remaining creditworthy and keep the doors open for future borrowing needs.

John Jacob

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