The easiest way to get quick money is to go for a loan. It’s one way of addressing your current financial requirements. This practice has become common because of the inevitable desire of wanting things, either materialistic or non-materialistic, and also the increasing financial needs of people. The financial urgency can be met by a loan.
There are multiple types of loans, such as personal loans, business loans, gold loans, car loans, education loans, loan against property (LAP), etc. All these types of loans are grouped into two categories, i.e., secured loans and unsecured loans. In this article, we’ll be talking about a loan against property (LAP) and see if opting for a loan against property is a good idea or not.
What is Loan Against Property?
A loan against property or LAP is a secured personal loan taken by the borrower, where he/she puts his/her asset with the lender as collateral till the total loan payment is fulfilled. The asset can be like a commercial space or your own land or a building, etc. Unlike unsecured loans, the interest rates in secured loans are predominantly lower because the lender is secure that if the borrower defaults on repayment, he can sell the pledged asset and recover his losses.
Choosing the right type of loan can be a bit cumbersome, so, it’s significant on the part of the people to have the necessary knowledge of secured and unsecured loans. If you need quick money at a low-interest rate, a loan against property will get your job done.
A loan against property or LAP gives the borrower the leeway to use it as leverage for getting additional funds to meet your charted requirements. The basic criteria for a loan against property are that the borrower should either have a freehold or built residential or commercial property or vacant land in his name.
Is Loan Against Property a Good Idea?
So far, you have understood the concept of a loan against the property. If you have a property that’s free from legal restrictions, then you are good to go to apply for a loan against property. The best feature of a loan against property is that you can use the money for any purpose like paying hefty medical bills, refurbishing your house, expanding your company, or for the wedding of your child.
Most of all, the borrower gets a high loan to value (LTV) of up to 70 percent of the total property value. Thanks to the extended loan repayment time horizon, it trims down the total monthly EMIs into smaller amounts, giving a sigh of relief to the borrower at the end of every repayment cycle. Likewise, there are myriad advantages of availing a loan against property.
Here, we have enlisted a few advantages that explain why a loan against property is a good idea.
- Low-Interest Rates: As it’s a secured loan, the rate of interest is pretty low on a loan against property. Unsecured loans have high-interest rates and have more stringent guidelines for the borrowers. The interest rate on LAP ranges anywhere between 8% to 25% per annum. There are a few factors that decide the interest rate like property value, the ability of the borrower to repay the loan, total amount loan, etc. There are two types of interest rates – fixed and floating. The borrower can choose any of the aforementioned. You can go with the former if you wish to avoid future repercussions, especially when the market oscillates drastically.
- Tax Benefits: Generally, there are no tax exemptions on a loan against property but there are exceptions that allow you to get a tax benefit. Say, you used the loan money in your business to take it to the next level, then, you can claim tax benefit on interest paid as business expenses under Section 37 (1) of the Indian Income Tax Act. If you are a salaried employee who utilized the funds to buy a residential property, you can avail of the benefits under Section 24 (B) of the Indian Income Tax Act. However, keep in mind that, both the earlier said exceptions are only on interest paid but not on the repayment of the principal amount.
- Credit Score: Before any lender sanctions a loan, one of the many things they check is the credit score. This score gives them the validation of whether you are eligible to enjoy the credit or not. this isn’t the case with a loan against property, and most of the lenders wouldn’t consider this feature as the prime factor behind giving a loan. So, it’s a relief for most borrowers who had taken any other loan elsewhere for some purpose or had less credit score in the past.
- Loan Tenure: The time horizon for any loan ranges from anywhere between 12 months to 60 months. In the case of a loan against property, the borrower is relaxed with long loan tenure, i.e., from 5 years to 15 years. This prolonged period helps borrowers to focus on other financial areas where they are lagging. Plus, they get to pay less EMI on a periodic basis. In case, if you are having an arduous time with the finances, you can go with a 15-year-long tenure. Eventually, this reduces your onus to pay more every month on the loan taken. On the contrary, you have to remember that, the longer the loan repayment tenure, the higher will be the interest rate, and vice-versa.
- Free To Use For Any Purpose: The sanctioned amount on loan against property can be used for any purpose. You don’t need a specific reason before you go for this option to get financial support. Whether you are planning to renovate your house, buy a vehicle, or provide child support, there are no limitations or exceptions as long as it’s not used for illegal purposes like gambling or doing drugs.
Summary
If you are looking for financial support to help you overcome your financial worries, a loan against property is the best way to get your job done in less time. The process is swift and doesn’t take much time or lengthy documentation. All you need to have is a legitimate property like commercial space, house, or any land that suffices for the loan amount you are looking for. Lower interest rates, refinancing facilities, tax exemptions, right to occupancy are some of the benefits of availing a loan against property. So, if you are short on funds, wait no more, and go for this idea.
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