The earlier generations in our country had shunned loans and credit products. However, with changing times and better income, the perception towards loans have changed. Today, individuals are no more averse towards obtaining loans or credit cards. In fact, it is viewed as a measure that help in achieving many things in life.
The need for credit can come up at any time. No matter how well planned your finance is, certain situations may throw you out of gear. Loans like a home loan, vehicle loan or an education loan can be availed only for specific purposes. However, what if you are in need of some money to meeting the wedding expenses of your daughter, to help a friend in need, for starting off your business or a mix of any of the reasons.
You might choose to go in for a personal loan. However, you must be aware that a personal loan is an unsecured loan and hence, comes with a higher rate of interest and holding more of unsecured borrowings adversely affects your credit portfolio. In cases like these, loans against assets come in as the saving grace. Among the other loans that you can avail against assets are gold loan, loan against a Fixed Deposit, loan against property, loan against investments like insurance or stocks and shares, etc.
Among the assets that you can use to avail a loan, rent receivables is also one, but is less popular. However, this comes across as a very useful option, as this loan can be availed without mortgaging the property.
Let us learn more about the terms and conditions, eligibility, documentation and other important features of the loan so that next time you are in need of some credit, you can make use of your rent receivables too.
What is Loan Against Rent Receivables?
Loan against rent receivables is a kind of personal loan, with no conditions attached to the end use of the loan. This loan can be availed against the security of future rent of a property owned by you.
What is the Eligibility Criteria for Availing Loan Against Rent Receivables?
The main condition for availing a loan against rent receivables is to own a property with clear title on which you earn rental income. The others being:
The property has been constructed in accordance with the current rules and regulations of the government
The property in question is already let out and has been earning rent
There is a proper rental or a lease agreement in place between the owner and the tenant
The owner and the tenant both have good grades of creditworthiness
Some banks insist on a rental income of a commercial property only
There may be other terms and conditions added by the lender which will have to be complied with at the time of borrowing
What is the Documentation Required for a Loan Against Rent Receivables?
As this is a loan against a future receivable, the documentation for the same is slightly on the higher end. The documents normally demanded for a loan against rent receivables are:
KYC Documents (Identity & Address Proof)
Leave and License agreement copy
12 months bank statement to which rentals are credited
However, in addition, Income Tax returns, Profit & Loss Accounts, Balance Sheets, etc. may also be required if the owner is a business concern.
What is the Procedure for Availing a Loan Against Rent Receivables?
The procedure generally followed for availing a loan against Rent Receivables is similar to availing a normal personal loan but may take a little longer for processing.
You May Follow The Following Steps For Applying
Fill and submit the Online Application Form on any of the bank or NBFC websites
Call on one of the Phone Banking numbers provided on the website
Visit your nearest branch, preferably the one with which you have an existing banking relation
Contact CreditMantri, we provide personalized service and would be able to guide you to the right lender based on your credit profile and your need for loan
After applying for the loan
After you have submitted your application with all the required documentation, the lender will verify the property details
They may also carry out a physical verification of the property and also check for the legal verity of the documents submitted
If everything is in order, the bank will get into a tripartite agreement with your tenant, you (the owner) and the bank as three parties. As per this agreement, the tenant must pay the rent to the bank directly. You and your tenant will be required to give an undertaking to this effect to the bank.
Disbursal of the Loan takes place
What is the Tenure Allowed for Loans Against Rent Receivables?
Different banks may follow different terms depending on the case on hand. Here are some examples from various banks:
HDFC Bank sanctions for a minimum tenure of 12 months and a maximum tenure of 108 months. This, however, depends on the balance lease period and other parameters.
Federal Bank allows a tenure of up to 120 months.
What Is The Amount Allowed For Loans Against Loan Receivables?
The value of the loan is based on market value of the property subject to conditions like loan amount between 50-90% of the market value of the property. This also depends on the balance tenure of the rental agreement and other conditions. Some lenders also like to maintain a margin on the discounted value of net rent receivables.
Comparison of a Loan Against Receivables against a Normal Personal Loan
|Loan Against Rent Receivables||Conventional Personal Loan|
|Amount Sanctioned||Amount sanctioned is based on the market value of the property, hence a larger sum of loan may be availed||The limit is restricted to your income. A bigger personal loan is difficult as it is an unsecured loan|
|Tenure of the Loan||10-20 years||1-5 years|
|Approval Time Frame||As the loan is backed against the security of an asset, verification of the asset may take some time||A conventional personal loan doesn't involve verification of an asset, thus is processed pretty quickly|
|Interest on the Loan||Asset-backed loan, hence a lower rate of interest||Unsecured loan so carries a higher rate of interest.|
The decision to avail a personal loan or a loan against rent receivables should be taken based on the merits of each case. But the bottom line remains the same, avail only those loans that you can repay comfortably without adding to your financial burden.