Requirements for additional funds can come up at any point of time. With your savings, you can manage these situations. However, sometimes, your savings may not be enough to cover the sudden requirement for extra funds.
During such times, people commonly borrow money from financial lenders in the form of personal loans. However, a personal loan often comes with more stringent eligibility criteria since it is an unsecured loan. Moreover, the quantum of funding through such a loan is also limited.
In this situation, opting for a loan against property or LAP can be a good option. As a secured loan, a loan against property can be availed to meet a variety of financial needs. This may include expenses related to plans of business expansion, paying debts, managing medical expenses, and so on. Most importantly, a secured loan typically comes with a relatively lower loan against property interest rate.
How You Can Achieve Low Rates on Loans Against Property
For sanctioning mortgage loans, financial institutions seek collateral. Properties owned by you can be pledged against the loan as collateral to avail of the loan, which makes a mortgage loan a secured loan. For financial institutions, lending a secured loan is easier.
Therefore, those seeking a loan against property not only get the benefit of a lower interest rate but also stand to be offered a higher loan amount and longer tenure to repay the loan. An important point to take note of regarding a loan against property is that it cannot be sanctioned to you in case you are not the owner of a property. Thus, applicants are required to prove the ownership of the property they are offering as collateral. Lenders do not consider a disputed property as acceptable collateral. Loan applications are rejected if a disputed property is offered as collateral.
Best Features of Loan Against Property
A loan against property comes packed with benefits. Some of the best features of a loan against property are listed below:
Easy to apply
A loan against property is easy to avail. Generally, lenders set more lenient eligibility criteria since the loan is secured by collateral. With the right lender, the loan-availing process can be a hassle-free experience and the disbursal can also happen quickly.
Sizeable loan amount
Through a loan against property, a higher amount of funding can be availed. This gives borrowers the flexibility of choosing the loan amount as per the requirement. Generally, the loan amount is capped at 75% of the value of the pledged property.
Do note that the final approved loan amount can be subject to different factors. For instance, different lenders may choose to offer different amounts. Additionally, the type of property, such as residential property or commercial property, can also affect the loan amount.
Extended repayment tenor
Mortgage loan comes with a longer repayment time. The tenure of the repayment can go up from 15 to 18 years. However, the tenure may not be the same for different lenders of mortgage loans. Borrowers can always customize the repayment time as per their repayment ability.
Considering the availability of a longer repayment tenure, borrowers save themselves from the burden of paying hefty EMIs. Note that a longer repayment tenure also comes with higher interest outflow.
However, in comparison to other loans, the LAP loan interest rate is lower, which significantly reduces the interest amount, too. Loan seekers can also perform due diligence and compare LAP loan interest rates between lenders to ensure they get the best deal.
Continued property ownership
Borrowers continue to enjoy the advantages of the property and do not lose ownership after availing of a loan against the property. This feature helps owners avail of funds while still residing in the property or letting it out.
Know the risks
The easy availability of the loan combined with a lower mortgage loan interest rate has the potential to put people at risk of losing their property. In case of defaulting on loan repayment, borrowers may face a situation where the pledged asset is under threat. In extreme cases, confiscation of property can happen as well. The best way to avoid such a situation is to know the risks. As a borrower, analyze the requirement of funds. Accordingly, choose the loan amount and do not overleverage. A lower mortgage loan interest rate does not justify the need for availing of a higher loan. Likewise, property loan interest rates should not determine the selection of the repayment tenure. Rather, your repayment ability should be the deciding factor. Depending upon the possibility, instead of choosing to pay off the loan over a long period, prefer a shorter or a standard repayment period. The selection of repayment period can be determined based on your affordability and other expenses. You can use the loan against the property calculator to check and decide on a feasible EMI for yourself.
For people between the age of 18 and 65 years, meeting their financial needs through loans against property can be a practical choice. A lower property loan interest rate and the unlimited scope of the use of the loan money can further strengthen your finances. Also, lenders do not usually levy penalties for paying off the loan before the scheduled time, which makes it easier for the borrowers to plan the repayment as per their financial condition. Borrowers, however, are expected not to get carried away with the loan on offer. Only a carefully thought-out decision can lead to the effective use of this loan option.