A loan against property is one of the most popular forms of credit in India, and for a good reason. It gives you access to funds immediately by leveraging the assets you own and using it as a collateral. An extended repayment, and affordable interest rates, make it a go-to loan option for many.
If you’re considering this option, using a loan against property calculator can help you understand how much you can borrow and what your EMIs might look like. Let’s explore how LAP works with an example.
Mr. Aditya Shinde, a self-employed professional who owns a retail shop in Mumbai, celebrated his shop’s 5th anniversary, and now wants to open another shop to take this business to the next level. So, to accomplish his business goals, he decides to apply for an unsecured loan.
However, the high interest rates and short repayment tenure shocks him, and he feel dejected about not being able to make his dream of opening another shop come true. But his friend consoles him and advises him to unlock high market potential of his residential home and use it as a collateral to avail a loan against property.
As the name says it all, loan against property is a form of secured credit wherein you can mortgage any property that you own with the lender and avail funds against it. And, since LAP involves a mortgage, it is also commonly known as a mortgage loan.
Benefits of LAP
Now that you know what loans against property mean, it would help to know about their various benefits.
- Higher loan amount
One of the main reasons why many people prefer applying for a loan against collateral is that it helps them borrow a large sum, which is not possible with unsecured loans. With LAP, depending on the borrowers’ policies, you can avail of a loan of up to 65% of the market value of the property you pledge.
In addition, you can take advantage of the longer repayment period, which can extend up to 12 years. This allows you to easily repay the amount, and the EMI (equated monthly instalment) is quite affordable.
- Flexibility to use the loan
When you avail yourself of a loan against property from NBFC (non-banking financial company), the lender gives you the flexibility to use the funds you borrow for any purpose you deem fit.
You can use the money to expand your business, pay employees’ salaries, buy new machinery, or even take care of any healthcare expenses of your family member. The lenders usually don’t have any restrictions on how you use the funds.
- Loan for all
Another significant benefit of a loan against property is that this form of credit is available for all. Whether you are a salaried employee, a self-employed professional or an entrepreneur, you can get the funds you need. If you have any self-owned asset that you can pledge, you can use it as collateral and get the loan.
- Easy process and simple documentation
Nowadays, most lenders in India offer 100% digital services, allowing you to apply for any kind of loan you want, including LAP online from the comfort of your home or office with only a few steps. Also, the quick approval process and fast disbursement allows you to get access to funds immediately.
Also, as compared to other types of loan, LAP has minimal documentation requirements, which makes the whole borrowing process smooth and hassle-free for you.
- Interest rate
Generally, the interest rate for a loan against property tends to be less than the interest rates of unsecured loans. This is because with LAP, the lender has the security of your asset, which they can sell off to recover the amount. Thus, the risk involved for them in lending you the amount is less and consequently, the offer the loan at attractive interest rates.
Reputed lenders in India offer LAP as a secured business loan at attractive interest rates.
- Loan transfer
After your LAP application is sanctioned and the amount is disbursed, the repayment tenure starts immediately. As you continue to make the monthly payments during the loan tenure, if you find any lender that is offering LAP with better terms and lower interest rates, you can transfer your loan from the existing lender to a new lender.
This process of transferring the loan is called balance transfer of loan. After the loan transfer process in completed, you can repay the loan for the rest of tenure at a lower interest rate and enjoy valuable savings. However, before you initiate the balance transfer of loan, you must carefully evaluate the costs involved and then take an informed decision accordingly.
Important things to consider while applying for loan against property
Applying for a big-ticket loan like LAP is a big financial decision. And so, you must consider the following things while borrowing –
- First and foremost, evaluate your exact financial needs, i.e., determine how much loan you want. Also, you must assess if the property you want to pledge is sufficient to meet your fund requirements.
- Compare the interest rates offered by different lenders so that you can secure the best loan offer. Even a slight difference in the interest rate, say 0.5%, can make a huge difference in your overall interest payment, and you can save a significant amount through the loan tenure.
- Assess your financial condition carefully and choose a suitable repayment tenure so that the EMI is affordable.
- Make sure to check the different charges involved with the loan apart from the interest, like the foreclosure and prepayment charges, loan process fees, etc. Choose a lender that offers the loan with a low process fee and zero penalty for prepayment.
Final Word
Loan against property is a powerful financial tool that allows you to use the market value of your self-owned property to get a loan against it and use the funds for your personal and business needs. However, it is a big financial obligation, so make sure to assess your repayment capacity, recognise the risk associated with mortgaging the asset and choose the right lender.