We will here today know about the best loan against any property for personal expenditure but at the same time will also cover all the reasons due to which one should take a loan against any property or not?
One of the biggest advantages of a loan against property is that it allows borrowers to use the closing value in the property while continuing to occupy the property during the loan term.
“Loan Against Property is one of the safest loans,” say financial experts.
When we need money to meet urgent needs or personal expenses, the first thing we think of is debt. However, some people find it difficult to decide which loan to apply for or whether a loan against property is a good idea. While some concerns may be justified, financial experts say that loans against property are one of the safest loans and have lower interest rates than other options. This allows us to use the closing value on a property while continuing to hold the asset during the loan term. A popular solution for long-term loans has always been the Loan Against Property (LAP). LAP can be defined as simply borrowing a large amount from an institution, such as a bank, by vouching for your assets to the bank. LAP is seen as a viable alternative to cash borrowing, as the valuation of the property is always high and hence can help in securing a bigger loan. Even though borrowing money from the bank through the facility of your property may seem like an interesting proposition, it can be noted that it comes with its fair share of pros and cons. Hence, it is imperative and strongly advised to exercise caution while deciding to take a long-term loan.
What is a loan against any property?
A Loan Against Property (LAP) is a secured loan that banks, housing finance companies, and NBFCs provide to people against residential or commercial property. These loans are usually given at a lower interest rate than a personal loan or business loan and are disbursed at a reasonable time. Anyone with pre-owned property can avail of such a loan, whether they are salaried or self-employed in a business or professional setup. The quantum of loan sanctioned is also higher than compared to other available options.
A Loan Against Property (LAP) is a type of secured loan. Which provides a property approved as holding| mortgage with the lender. This property can be either an owned land, a house, or any other commercial premises, whichever your property is owned by you. As long as the asset remains with the lender as collateral, the entire loan on the amount of the asset is repaid within the stipulated period. This type of secured loan can be an alternative to unsecured personal loans with no end-use restrictions as well. However, the loan amount can be very high and the tenure, in this case, can also belong. Loan against property interest rates is much lower than compared to any unsecured loan. You can use these loans for business purposes like buying machinery, buying raw material, purchasing equipment, financing working capital, debt consolidation, etc. This type of loan can also be done for meeting personal needs like marriage, higher education, Home Renovation, Buying a New Home, Managing Medical Expenses, etc. But here only personal expenses are being talked about, then this loan is also very good for personal expenses.
Some things you need to know before taking a loan against property
- Before sanctioning the loan, banks thoroughly examine the records like payment-track record and repayment capacity of the individual. So that no disputes arise in the future if you have other debts or current liabilities, your eligibility for another loan gets further reduced. The bank checks all your valid information. Some banks also take into account the number of dependents in a person’s family, as more dependents are considered to have less repayment capacity.
- Experts suggest that one should avoid over availing as it can lead to loan default and you may lose the asset against which you have taken the loan. If the property being offered as collateral is disputed, there are chances that your loan request may also be turned down. Because the bank has all your legal information.
- Sometimes banks do not accept the loan request if the property taken as collateral is embroiled in a dispute or the property papers are not clear about the ownership. These loans are available for longer tenures up to 15 years and with quick approval, flexible repayment options, the documentation for a loan against property is relatively easy.
- These loans are of a high amount and have a longer tenure, therefore, compare lenders before deciding to choose the right lender for your LAP. Experts suggest that while comparing different lenders, one should not limit their research to just the interest rates offered. Other parameters, such as prepayment charges, foreclosure charges, processing fees, late payment penalties, and loan to value ratio should be considered.
- The value-to-debt (LTV) ratio is generally limited to 50-60 percent of the market value of the property. The loan can range from Rs 5 lakh to Rs 500 crore, and the tenure can go up to 20 years.
- LAP does not offer any tax benefits, unlike home loans, which offer tax benefits of up to Rs 2,00,000 per annum on interest repayment and up to Rs 150,000 on principal repayment.
Let us see how a loan against any property is best for personal expenses and other expenses?
Its advantages and disadvantages
- A unique feature of LAP is how the loan amount can be availed. You can either get it as a full lump-sum payment or take it as an overdraft facility.
- Another great feature provided by LAP is no prepayment of penalty. This makes it very easy for individual borrowers to waive the penalty in case of floating rate loans.
- Another great advantage of LAP is that the loan can be availed of a self-owned property or a leased property as well. Looking at the finer aspect, one can realize that the LAP has the potential to monetize idle assets. Which is a good advantage.
- One of the main advantages of LAP is that the interest rates are very low as compared to personal loans. Loan Against Property interest rates range from 11 to 15% p.a. and cover tenors ranging from 1 to 9 years. The tenure can also be extended up to 15 years. That would be icing on the gold
- Heavy scrutiny by banks is also one of the major drawbacks. Checks like credit score, repayment capacity are some of the various parameters that will be checked by the bank. Because this process is also necessary for the bank. Also, this can be one of the reasons why you are getting delayed in getting the loan.
- One of the major disadvantages of appraising a property from different banks is that different banks give different valuations for different assets. There is no standard set pattern for evaluation. This can lead to disparity in getting the loan amount. The normal expectancy should be 70% of the total assets.
- It may not be called a huge loss, but the waiting time to secure the loan is very long when applying for LAP when the loan is required in time. Banks are required to conduct background checks of the person applying for the loan. This is done to ensure that the candidate seeking the loan is legitimate. This results in some time consumption, which can frustrate at times.
- The last and biggest risk with a loan against property is that the bank has all the right to sell your property. This is already mentioned on the MoU and your signature is taken on it and then if you are not able to repay the loan then claim its due
Looking at all the pros and cons, you may or may not opt for LAP considering the urgency of your requirement. It depends on you because we have told you its advantages and disadvantages in this article. And also your need should be given priority, whether your need is more or less. You would do well to consult professional financial advisors who can provide you with the right guidance. With them, they will have the responsibility of doing thorough research before planning to borrow a loan!
Hope you have got an idea about whether a loan against any property is best for personal expenses and other necessary expenses. If you liked our article, then definitely tell in the comment box. Do not forget to share the article with your friends and relatives.