Have you ever felt the need of funds but was not sure how to arrange the finances? Like you, many feel such pangs and apply for unsecured loans or sell off assets to generate monetary support. However, there is absolutely no need to choose any of the two-given options, if you own a real estate property, as you can always opt for a loan against property, which is a secured loan, and comes with many benefits over other forms of borrowings.
So, what is a Loan against Property (LAP)?
- It is a loan provided by financial institutions against the real estate property (commercial, residential, or industrial) owned by the borrower.
- The interest rate can be either fixed or floating.
- The tenure of a property loan usually remains between 5 and 15 years.
- You can get up to 70% of the property’s current market value, as the loan amount.
- The property, against which the loan is given, is mortgaged with the bank/NBFC, until the whole amount is repaid.
- After the loan is repaid in complete the property papers and documents are released to the borrower.
Before applying for such a loan, it is important to check for the scheme information and documents required. Look for eligibility criteria for loan against property, as every bank/NBFC has a unique set of requirements besides the basic condition for KYC documents, age of the applicant, property papers, financial liabilities etc.
Below given are 5 reasons as to why you should choose a property loan:
- Flexible Tenure and Low EMIs: Many of the collateral-less loans come with short-tenure, making it sometimes burdensome to manage the high EMIs. However, LAP comes with tenure between 5 years and 15 years, making it easier for you to manage the EMIs without stressing the pockets.
- Lower Rate of Interest: Being a secured loan, LAP costs you as low as 9-10% interest rate, which can go up to 16 percent, depending on the property’s condition and other factors. Thus, the low rate charged, makes this borrowing option a completely affordable deal.
- Quick to Receive: It is relatively easy to avail LAP irrespective of your employment type. The loan is equally accessible to salaried individuals, professionals, and self-employed people, as long as the property in question is registered in their name, and is free of any legal issues.
The funds will not be provided against an empty plot of land though. The loan application can be processed quickly if all the required documents are ready to submit. A small processing fee of up to 1 percent of the total loan amount sanctioned can be applied.
- Multi-Purpose Loan: Like a personal loan, a loan against property has no restriction for its end use. The fund can be used for any reason, such as higher education, wedding, and renovation of house, debt consolidation, medical treatment, vacation, travel, and any other big-expense.
- Refinance the Loan: You can refinance the loan, if the property value increases over the period of time. This feature is especially beneficial for businesspersons who wish to expand their business, as they can use the same property as a means to support their expansion dreams.
Thus, a property loan serves many benefits, not to mention that the property against which funds are released always stays under the ownership of the borrower and will never be compromised, until the borrower cannot defaults at the loan and cannot repay the same. In such situations, a settlement will be called for, but if no option can be worked out to repay the amount, then the property can be auctioned, but that is the last resort.
Any surplus amount received over the outstanding amount, after selling the property, is reverted to the borrower. So, if you ever face a crisis, you can let the property go, without losing much.