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Tata Capital > Blog > Loan on Property > What Are the Different Fees and Charges on Loan Against Property?

Loan on Property

What Are the Different Fees and Charges on Loan Against Property?

What Are the Different Fees and Charges on Loan Against Property?

A loan against property is the most versatile form of credit you can get. From financing your children’s education to weddings to home renovations, you can conveniently apply for LAP to fund hefty expenses.

But before finalizing a lender with the best LAP rate and submitting your application, there are a few charges that you must consider to make an informed decision. This includes foreclosure charges, LAP rate, processing fee for loan against property, and other LAP charges. 

Let’s understand them in detail.

Loan against property interest rate

LAP loan interest rates are usually higher than traditional loans. But with intense competition in the market, you can get it at competitive rates. Your loan against property interest rate will depend on your principal loan amount and loan tenure.

In India, the LAP loan interest rate ranges between 9% and 12%. Most lenders also allow you to choose between fixed and floating interest rates depending on your preference and expected growth in income.

Loan Against Property Processing Fee

When you apply for a LAP loan, lenders will charge a processing fee for evaluating and processing your application. The processing fee for loan against property usually ranges between 0.5% and 2% and is non-refundable even if the lender rejects your application.

So make sure you compare different lenders carefully and check their loan against property processing fees before making a decision.

Foreclosure Charges on Loan Against Property

The lender levies foreclosure charges on loan against property if you close the loan before the tenure ends. Depending on the lender, this charge can range between 2% and 4% of the outstanding loan amount.

If an Individual borrower has taken a loan for personal purpose and has chosen floating rate of interest, then Foreclosure Charges will not be applicable. In all the other scenarios including Non-Individual Borrowers and borrowers with loan purpose other than personal, foreclosure charges will be applicable

Part Payment Charges

It is similar to foreclosure, but instead of pre-paying the entire loan amount, you only make a partial payment towards it. In such a situation, the lender will impose a fee on you called the part-payment charge. In India, it usually ranges between 1% and 2%.

EMI bounce charges

If you fail to pay your EMI timely due to insufficient funds or other technical issues, the lender will levy an EMI bounce charge. These charges are typically a small percentage of the missed EMI payment amount and vary from lender to lender.

Legal Charges for Loan Against Property

When you submit your loan against property application, the lender will run a check on the property to verify if it is free of legal disputes. This includes evaluating legal documentation and conducting an on-site evaluation of the property. You will have to pay for the cost of this evaluation in the form of legal charges.

Loan Rescheduling & Account Maintenance Charges

Many lenders allow you to extend your loan tenure, helping you reduce your monthly EMI burden. This is called loan rescheduling. However, you’ll have to pay a loan rescheduling charge which varies from lender to lender.

Comprehensive List: All Loan Against Property Fees & Charges in India

Below, we offer a comprehensive list of all the loan against property fees and charges you may encounter:

  • Processing Fees: This is a one-time charge (usually 0.5%–2% of the loan amount plus GST, depending on the lender).
  • CIBIL Report Charges: A nominal fee is charged for lenders to review your credit score.
  • Legal Charges: This fee covers property verification and risk assessment.
  • Statement Fees: This fee covers printing and mailing loan statements to track interest and principal payments.
  • Loan Rescheduling Fees: These fees apply when the loan tenure or EMI amount is modified.
  • EMI Bounce Charges: Levied if an EMI cheque bounces or if funds are insufficient.
  • Penal Interest Charges: Extra interest (typically 2% per month) for delayed payments.
  • Part-Payment Charges: Fee for paying a portion of the loan before the whole tenure.
  • Foreclosure Charges: Cost of repaying the outstanding loan in a single payment.
  • Security Fees: Charged to protect accounts, transactions, and sensitive data; often avoidable with online loan management.

Please note that these charges may vary by lender. 

What to Compare Beyond Processing Fee When Choosing Your LAP Provider?

While the processing fee is essential, several other factors influence your choice of a Loan Against Property (LAP) provider. These include:

  1. Interest rates: These are vital because even slight differences can significantly affect your total repayment. 
  2. Prepayment and foreclosure charges: Consider prepayment and foreclosure charges, especially if you plan to repay the loan early. 
  3. Loan tenure and EMI options: It is crucial to compare loan tenure options and EMI rescheduling flexibility, as these will affect your cash flow and, in some cases, interest rates. 
  4. Hidden fees: Legal and valuation charges can add up and increase your total costs. 
  5. Lender policies: Interest rates, risk appetite, and lender policieswill affect the interest rates you are offered on your LAP. Remember to assess different lenders to understand which one best suits your requirements. 

Typical Fee Ranges by Lender: Private Bank, NBFC, Public Sector

Fees and interest rates for loans can vary significantly depending on the type of lending institution. Broadly, the following charges differ across private banks, public sector banks, and NBFCs:

Fees and chargesPublic SectorPrivate BanksNBFCs
Interest rates 8.5% – 10.5%9% – 12%
10% – 13.5%
Processing fees0.5-1% of the loan amount0.5-1% of the loan amount 1-3% of the total loan amount 

In addition to these charges, it is essential to consider other factors. For example, while private and public-sector banks typically offer lower interest rates and processing fees, NBFCs often offer greater repayment and documentation flexibility. 

However, NBFCs typically charge higher prepayment and foreclosure fees than traditional banks. Legal fees, EMI bounce charges, and other fees will also vary by lender and loan amount. 

How to Reduce & Negotiate Loan Against Property Processing Fees?

While LAP processing fees and other charges are generally fixed, there are some steps one can take to negotiate offers. These include the following:

  1. Improve your credit score: A credit score of at least 750 or above signals to lenders that you are creditworthy and demonstrates repayment ability. 
  2. Maintain a stable income: A steady source of income can demonstrate to lenders that your repayment capacity is strong and helps to build trust. 
  3. Apply to lenders where you have an existing relationship: Banks and other financial institutions may be willing to negotiate fees with customers with whom they have an existing relationship. 
  4. Compare lenders: Reviewing their processing fees can help identify which offers better interest rates and other charges. 
  5. Apply during festive periods: Many banks and financial institutions offer holiday or festive offers on their loan offerings. Applying during these periods may let you get discounts or reduced fees and charges. 

Also, read – Step By Step Loan Against Property Process 

GST and Stamp Duty on Loan Against Property Charges

Loans against property typically also come with stamp duty and GST charges. GST on most loans is 18%. 

Stamp duties are also a type of mandatory tax on legal documents. Stamp duties ensure a document is legally valid and generally incur a fee. This amount will vary based on the state, loan amount, lender, and property value. 

Stamp duties are levied by state governments and must be paid before registration of the loan document. They provide legal protection for both the borrower and the lender, making them a crucial component of loans. 

Penalty and Service Charges: Overdue, Statement, Document Issuance, Legal

In 2023, the RBI released a circular titled “Fair Lending Practice–Penal charges in Loan Accounts (‘Circular’). According to this circular, entities are not allowed to charge penal interest on loan accounts. Instead, they are to levy penalties or separate penal charges. 

It applies to any commercial banks, NBFCs, HFCs, Primary Urban Co-operative Banks, and India Financial Institutions. 

Additionally, penalties may be charged for overdue payments and document issuance. Legal fees may also be charged (for example, if the borrower’s account is turned over to legal authorities due to non-payment, legal costs will be added as additional charges). 

Also, read –Can I get a 100% Loan Against Property? 

Conclusion

When applying for LAP, you must go beyond just attractive loan against property interest rates. Charges like processing fees and legal charges can increase your overall loan burden even before the lender approves your application. So make sure to compare different lenders carefully for a smooth repayment experience.

You can also check out Tata Capital’s loan against property to get the best interest rates in the industry and flexible repayment options. Visit our website to know more.

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FAQs

What is the typical processing fee for loan against property in India?

 

Processing fees for loans against property in India vary by lender. Most public and private-sector banks charge between 0.5% and 1% of the total loan amount, whereas NBFCs may charge higher fees.

Are loan against property foreclosure charges applicable to all borrowers?

 

No, foreclosure charges are not levied on all borrowers. In 2024, the RBI mandated that foreclosure charges would not be imposed on individual borrowers seeking floating interest rate loans.

How can I negotiate lower processing or legal fees on LAP?

 

Borrowers can negotiate lower processing and legal fees by presenting a strong credit score, stable income, and a consistent repayment history.

What other hidden or one-time charges should I check before signing LAP documents?

 

Yes, there are often separate one-time charges on LAP documents. It is essential to confirm all charges with your lender before signing any LAP documents.

Do all lenders charge the same rate for part-prepayment or foreclosure?

 

No, not all lenders charge the same rates for foreclosure or partial prepayment. Per RBI guidelines, there are no prepayment penalties on floating interest rate loans.

Is GST applicable on LAP processing and legal fees?

 

Yes, GST applies to LAP processing and legal fees. Typically, an 18% GST is charged on loans, but it is essential to confirm all charges with your lender.

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