Loan against property commonly known as ‘LAP’ is one of the secure forms of loan as the investor can use their property as security while raising a loan. LAP is sometimes necessary in cases like medical treatment, children’s education, marriage, or starting a business. Lenders determine the loan value for mortgage transactions through the current market assessment of properties used as collateral. This article will explore everything about loans against property, their benefits, how to apply, and a lot more.
Benefits of a Loan Against Property
The following are the benefits of a loan against property:
- Lower Interest Rates: Since the loan is secured by a property, lenders offer lower interest rates compared to unsecured loans like personal loans. This makes LAP a good option for those looking for affordable financing.
- Higher Loan Amount: LAP helps you to borrow a large sum of capital based on the value of your property.
- Longer Repayment Tenure: LAPs usually come with longer repayment periods, which can go up to 15-20 years. This helps reduce the monthly EMI burden, making it easier to manage your finances.
- Quick and Easy Process: LAP is often quicker to process than unsecured loans, as the primary collateral is your property. The paperwork and approval process may be more straightforward, ensuring faster access to funds when you need them.
- Tax Benefits: Depending on the purpose of the loan, you may be eligible for tax benefits under Section 37 of the Income Tax Act. If the loan is taken for business purposes, the interest paid may be deductible.
- No Need to Sell Your Property: Unlike selling property for funds, LAP allows you to retain ownership and use the property while you continue to pay back the loan.
Types of Loan Against Property
Loan against property comes in different forms based on the borrower’s needs and the lender’s offerings. The common types include:
- Self-Occupied Residential Property Loan: This type of loan is taken by individuals who own and live in the property they are using as collateral. Since the borrower resides in the property, lenders may offer lower interest rates and favourable terms.
- Commercial Property Loan: This loan is secured against commercial properties such as shops, offices, or retail spaces. It is typically used by business owners or investors to fund business expansion, purchase new property, or meet working capital needs. Interest rates and loan terms vary based on the location, market value, and income potential of the commercial property.
- Loan Against Rental Property: In this type of loan, the borrower pledges a property that generates rental income, such as a house, apartment, or commercial space rented to tenants. Lenders consider the rental income as a factor while determining loan eligibility. This loan is beneficial for property owners who want to leverage their rental income to access funds without selling the asset.
- Industrial Property Loan: This loan is taken against industrial properties like factories, warehouses, and manufacturing units. Businesses typically use this loan for expansion, upgrading machinery, or boosting production capacity.
- Loan Against Land: This loan allows borrowers to use a piece of land they own as collateral. The land must meet the lender’s eligibility criteria, such as being non-agricultural, free from legal disputes, and having clear ownership documents.
Loan Against Property Interest Rate
The interest rate on a loan against property typically ranges from 8% to 15%, depending on factors such as the lender, the loan amount, and the property value. Securing a loan with a high-value property and a good credit score may help you qualify for a lower loan against property interest rate.
How to Apply for a Loan Against Property
The application process for LAP is simple. Here’s a step-by-step guide:
- Check Your Eligibility: Before applying for a loan against property make sure you meet the eligibility criteria set by the lender.
- Choose the Right Lender: It is important to compare different lenders’ interest rates, terms, and conditions to find the appropriate deal for you.
- Submit the Application: Carefully fill out the loan application form and submit it along with the necessary documents like proof of identity, proof of income, and proof of property ownership.
- Property Evaluation: The lender will calculate the value of your property using the loan against the property EMI calculator. This may involve an independent property evaluation or survey.
- Approval and Loan Payment: Once your application is approved, the lender will send you a letter confirming the loan details, such as the amount, interest rate, and repayment terms. The loan amount will then be paid to you or the seller, depending on the purpose of the loan.
Conclusion
Loan against property is a flexible and cost-effective financial solution for individuals needing substantial funds. It offers lower interest rates, higher loan amounts, longer repayment periods, and easy access to funds. Whether you’re a salaried employee or a self-employed individual, you may be eligible for a loan against property to meet your financial requirements without the need to sell your property. Make sure to compare different lenders and understand the loan terms to make an informed decision for your needs.