Loan Against Property

Loan Against Property

August 21, 2023 By: admin0 comments

LOAN ON PROPERTY

Whether you are employed and earning a salary or self-employed with your own business/profession, it becomes easier to arrange funds from banks to fulfill your short-term needs, provided your CIBIL score is good and you earn enough to cover EMIs after managing personal expenses. Banks offer personal loans to both salaried individuals and business persons, as well as business loans to those with their own businesses. Most banks will offer a personal loan with interest rates ranging from 10% to 20%. The typical tenure for personal loans ranges from 1 to 5 years.

But what if your cash flow is not tied to specific dates (such as the end of each month), and you need a loan for a longer duration to keep the EMI on the lower side? Also, having the ability to negotiate the interest rate would be an added benefit. These two statements hold true if you own a property, as there is an intriguing product called “Loan against Property” offered by many private and public sector banks. Let’s delve into this product in this article.

What is Loan against Property (LAP)?

LAP is quite similar to a personal loan, with the main difference being that you put up a property owned by you as collateral for the loan. This property could be seized in case of loan default. Since there is collateral, banks feel more secure in lending, which gives the borrower some bargaining power compared to unsecured personal loans.

Why You Might Need LAP?

You might consider opting for LAP to fulfill the following needs:

• Setting up a new business
• Expanding an existing business
• Child’s marriage or education
• Medical expenses
• Vacation

Key Features of LAP

Some features of LAP that make this option attractive include:

• The lower limit starts from 2 lakh with no upper cap
• Option for both floating and fixed interest rates
• Longer repayment tenure
• More affordable interest rates
• Loan amount up to 40% to 70% of the property value
• Simple processing

Why Should You Choose LAP?

There are three fundamental reasons that make this option worth considering:

1. Lower Interest Rate: Being a secured loan, you can negotiate a 4% to 5% reduction in the interest rate compared to personal loans. Interest rates typically range from 8% to 14%. This lower rate gives LAP a clear advantage over personal loans with rates ranging from 10% to 20%.
2. Extended Repayment Tenure: This feature further eases your EMI burden, as you can get LAP with a repayment tenure of 10 to 15 years. This is especially advantageous when your cash flow isn’t steady.
3. Optimal Use of Property: If you own a property that you’re not using, LAP provides an opportunity for efficient utilization. You retain ownership and access funds at more affordable rates.

Word of Caution

There are a few downsides to LAP that you should consider before applying:

• Loss of property ownership in case of default.
• Foreclosure charges might be complex, so ensure you have a clear understanding before applying.
• Eligibility for a large loan amount might lead to repayment challenges without proper planning.

If you’re encountering difficulties in obtaining a loan or need clarification regarding interest rates, tenure, eligibility, CIBIL score, etc., connect with our loan expert today.