Loan Against Property: If you are thinking of taking a loan and you have any property, then it is better that you take a loan against that property. It is better than any other loan and the lender gets many benefits in it. You can get many benefits in this, from tax exemption to higher loan amount. This loan comes under the secured loan category, in which both employees and business people can take this loan.
What is Loan Against Property or LAP?
Before taking a loan against property, it is important to understand what exactly LAP is? This loan against property is offered in which a commercial or residential property like a residential flat, office, plot or shop is used as security for borrowing from a bank or other financial service provider. It can be used by the creditor to fulfill both personal and business purposes.
How does the borrower get the benefit?
The borrower gets many benefits by taking loan against property. Let us know about them:
Freedom to use anywhere
The biggest advantage of taking a loan against property is that it can be used for any purpose like business, education, marriage, medical expenses, etc. Therefore, if you are not able to get a loan in that section for a particular purpose, then that purpose can be accomplished by taking a loan against property.
Low interest rates
One of the biggest advantages of taking a loan against property is the low interest rate. Since this loan comes under a secured loan category, the bank has the right to make a legal claim on the property in case of any loss. The interest rate on loan against property is much lower than other loans, it starts from 9.65 per cent per annum. Whereas the interest rate on personal loan and gold loan is higher than this. This reduces the risk and banks are ready to give loans at lower interest rates.
Long term loan
The specialty of this loan is that the borrower gets the option to repay the loan over a longer period. Generally, approval is given to repay the loan in a period of 10 to 20 years. With this, you can opt for pocket-friendly monthly installments and the loan burden is less on you.
Property ownership remains with the borrower
Even after getting a loan against property, you retain the ownership rights of the property. Additionally, you can continue to use your property.
Under Section 37(1) of the Income Tax Act, if you take a loan against property, you get the benefit of tax exemption on interest and processing fees. Under Section 24(B) of the Income Tax Act, if you use your loan amount to buy a residential property, you get tax exemption up to Rs 2 lakh.
If you are also planning to take a loan against property, then keep some important things in mind.
Before giving a loan, banks look at some records of the person such as payment-track record and repayment history of the person. However, if you already have loans or have some liabilities, your eligibility for a second loan further reduces. Banks do not approve your loan request if there is any dispute related to the property you have taken or if the ownership documents of the property are not in order. The Loan to Loan (LTV) ratio is generally restricted to 50-60% of the market value of the property. Loans can range from Rs 5 lakh to Rs 500 crore, and the tenure can be up to 20 years. Other things to keep in mind include:
Repayment Period: The repayment period for loan against property can be up to 15-20 years. Compared to a normal loan, its repayment period is longer. If you shorten it, the EMI will increase, but the loan will be repaid soon. If you cannot pay higher EMI, then whenever you have surplus money in between, you can reduce the loan tenure by depositing a larger amount at once.
Loan Amount: The loan amount is prepared based on the price of the property. Most of the banks or other loan giving companies give the loan amount between 50-75 percent depending on the market value of the property. The loan amount depends on the location and condition of the property. After all this the applicant's credit score, source of income etc. is seen.
Processing fees and pre-payment charges: Like other loan options, loan against property also involves processing fees. This fee can usually be 2 percent of the loan amount. Along with this, prepayment charge can also be imposed on it.