A loan against property (LAP) is a potent financial instrument that can be used for business expansion, educating your child or fulfilling unexpected needs. A LAP provides cheap borrowing options. It has grown popular with Indians because of its flexibility and lower interest rates relative to unsecured finance in general.
Let’s see how a loan against property can help you achieve your financial objectives.
What is a Loan Against Property?
In a nutshell, a loan against property requires an asset, such as a house, plot, or commercial real estate, to be used as security by the lender. Most lenders lend between 60% and 80% of the current market value of the security asset. The person borrowing is at liberty to spend this money on anything.
For example, if:
Amount borrowed = 60% to 80% of the valuation of the property.
Interest rate = 8%to 12%.
Loan Tenure will range from 5 to 20 years, depending on the lender.
Benefits of Having a Loan Against Property
#1. Low Interest Rates
As a secured borrowing option, lenders offer it at lower rates compared to unsecured credit facilities, thereby reducing overall borrowing costs.
#2. High Loan Amounts
The loan amount depends on the value of the property, making it ideal for funding big projects that require significant funds.
#3. It’s multi-purpose
It’s possible to borrow money for almost anything, from weddings to business expansion, or any other personal aspiration.
#4. Tax Benefits
- This includes interest paid on your loan for the purpose of business under Section 37(1) of the Income Tax Act of India.
- The loan can also fetch additional deductions if it has been used for educational purposes or home renovation.
#5. Longer repayment term
A longer tenure reduces the monthly installment, which becomes more affordable.
How One Can Apply for a Loan Against Property in India
The steps involved in obtaining a loan against property are listed below:
#1. Check Eligibility
Some factors to consider in determining eligibility include income, credit score and type of property owned. An idea from the APR calculator may help you determine how much expenditure will be incurred annually (comprising interest charges and other costs).
#2. Compare different lenders
Some things to consider when comparing various lenders include competitive processing fees, interest rates charged and customer reviews.
#3. Make sure you have the following documents ready
- Property documents
- Identity proof
- Account statements
#4. Apply for the loan
Fill out the application at the lender’s branch or online. Verification is carried out by the lender. Once approved, money is deposited in your account within 3 to 5 days.
Importance of an APR calculator
The APR calculator is important because it calculates the true cost of borrowing money. This means that besides interest rates and other charges, these include legal costs and processing fees.
- Transparency — It provides a complete cost, thus allowing for an informed choice.
- Comparison — It is possible to compare different lenders’ offers.
- Budget planning — This helps in managing your expenditure.
Other Uses of Loan Against Property (LAP) in Real Life:
- To fund large expansion projects, entrepreneurs frequently use LAPs as they give access to huge amounts.
- Parents who want their children to study overseas can use the same facility because this enables them to meet both school fees and other related costs.
- A LAP can help with urgent medical situations because it has a fast-processing time for the disbursement of funds.
Moreover, a report by TechSci Research forecasts substantial expansion in the LAP sector from FY 2021 to FY 2026, indicating a robust market size.
Things To Consider Before Taking A Loan Against Property
#1. Evaluate Repayment Capacity
This will help you determine whether it is realistic or not to repay a loan against property without stretching yourself out. Further, one must be aware that defaulting on instalments results in foreclosure by lending institutions.
#2. Understand Foreclosure Terms
Prior to signing any agreement, the borrower should seek clarification about penalties associated with early repayments.
#3. Maintain Your Credit Score
Having a good credit score puts you in a better position to get approved for loans at favourable terms.
Wrapping Up
Property-backed borrowing provides an alternative solution for individuals facing significant financial gaps without selling their assets.
Before applying, please use an APR calculator to know how much it shall cost compared to banks. Whenever you plan well through regular repayments, you can have a stake in your property and, at the same time, stay financially sound.
Direct your finances today for a brighter tomorrow using your home as collateral. Yes, it is as simple as that. Good luck!
