In case you are considering taking a loan, you must know that secured loans are preferred over unsecured loans. Especially, Loan Against Property (LAP) is recommended by experts as a beneficial alternative to personal loans. If you own a property whether residential or commercial, you can use it as collateral and get a loan of a higher amount at a lower interest rate with no restriction on the usage of funds. The icing on the cake is that you can do all that while retaining the ownership of the property. Let’s learn more about the many advantages of this financial tool.
What is Loan against Property?
As the term suggests, it is a loan where the lender, lends the applicant capital and holds his/her property as security until the loan is fully paid. Once the repayment of the loan is done, the property papers are returned to the owner. In case of a default, the lender reserves the right to sell it to recover the unpaid dues. Since the land isput as a collateral, it falls under the category of secured loans, which are known to offer bigger loan amount and tenure at comfortable interest rates. There are a few primary types of Loan against Property - Loan against residential property, Loan against commercial property, and Loan against industrial property.
Benefits of LAP
With the growing demand of new bungalows, villas, and apartments, the rate of the property keeps rising. In LAP, one can get up to 60-70% of the property’s market value by mortgaging property. This means the loan amount will be a sizeable sum and much bigger than what personal loans offer. The loan amount will rise according to size, condition, and location of the property. The amount can be as high as 5 crores.
Lower rate of interest:
As we know, a secured loan lowers the risk of the lender and thus, is available at a lower interest rate compared to unsecured loans like personal loans. Though lenders check other eligibility criteria like the source of income, credit score, etc. before deciding the interest rate, generally, the interest rate in LAP is around 9-15%, which is much lower than the 15-22% bracket charged in personal loans.
Easier to get:
Not only LAP offers a bigger amount at a lower rate; it is also quite easy to get compared to other loans. Lenders are always eager to lend money against valuable collateral thus the documentation and verification process is simple and the loan amount is quickly disbursed. Moreover, unlike a home or education loan, there is hardly any restriction as to how to utilize the funds when it comes to LAP.
Lower and comfortable EMIs:
The applicant can opt for paying the loan either through EMIs or through overdraft facility, whichever is comfortable. Experts suggest that by paying maximum EMIs one can easily afford to end the loan faster. LAP, nonetheless, allows you the benefit of going for more relaxed EMIs and is a boon for people who can’t afford to pay higher EMIs.
Flexible and Long tenures:
LAP is generally available for a longer tenure, sometimes as long as 15 or 20 years depending on the loan amount while the tenure in case of personal loan is generally up to 7 years. The longer tenures lower the EMIs and thus, the financial pressure on the borrower. One can also go for prepayment, which is free in case of floating rate of interest and charges a nominal fee in case of a fixed rate of interest.
Best use of property:
In LAP, the ownership of the property remains with the borrower and he/she can use the property as he/she wishes. By seeking a LAP, the owner unlocks the real potential of the property. You can earn profits using the property for rental or commercial purpose even when it ismortgaged while using the loan amount to take care of your bigger monetary requirements.
Who should opt for LAP?
Firstly, you should be an Indian citizen between 21-70 years with a steady source of income to apply for LAP. There should be no disputes over the property and in case, there are co-owners, they all have to be co-applicants for the loan. Despite its many advantages, experts suggest that one should not put their valuable property on stake for smaller loan requirements. In case of any difficulty in repaying the loan, it can lead to loss of property and thus, one should opt for personal loans in case he/she needs a smaller sum.
The multiple advantages of LAP over personal loan make it a hit among borrowers, who own a property. One can use the property while reaping the benefits of the loan amount sanctioned while paying comfortable EMIs. However, bear in mind that land is a precious asset and must not be mortgaged for meager loan amounts. So, assess your need, repaying capability, and understand the terms and conditions before entering into a LAP agreement.