A recent study reveals the number of individuals applying for a loan against property is set to grow by 22% annually. This growth is a result of multiple aspects, including ease of access and lowers interest rates.
It provides the flexibility of usage, wherein an individual uses the funding for a multitude of reasons. This includes business expansion, bridge capital expenses, fund long-term medical treatment or higher education.
Several benefits that will help understand what is loan against property are listed here.
Benefits of LAP
Besides being a great funding resource, a loan against property is also an excellent debt consolidation tool. Some of the reasons to apply for a LAP are listed here.
Get a larger loan amount
A loan against property requires an individual to pledge their immovable asset as collateral. The financial institution will sanction the loan amount assessing two factors: the current market value of the property and the LTV ratio. Depending on the property type and location, the LTV will range from 70% to 90%.
Certain institutions offer monetary funding of up to Rs.3.5 crore. This high loan amount can be utilized to fund expenses like business expansion, home renovation, debt consolidation, etc.
Comparatively lower interest rates
Individuals who apply for a loan against property are required to pay a nominal interest rate compared to other credit options. This aids the repayment capacity of an individual by decreasing the total borrowing cost. This benefit isn’t applicable for unsecured loans due to the higher risks involved.
Ease in interest payment with tax benefits
Another key benefit of a property loan is that it offers tax benefits on interest payment if the loan amount is used for a specific purpose. Here is how you can avail tax benefits on your LAP:
- An individual can opt for tax benefit on interest payable on loan against property under section 37(1) of the Income Tax Act if the amount is used for business purposes.
- Tax benefits on interest payment on loan against property applicable under section 24(B) if the loan amount is utilized for a home purchase. Applicants can opt for tax benefits of up to Rs.2 lakh under this section.
- Lower EMI due to longer tenor
Another advantage of applying for a LAP is a longer tenor period. It helps reduce the amount of interest and EMI payable each month. Before opting for a particular tenor, the applicant needs to determine the ideal tenor of their loan against property.
Check the amount of interest and EMI payable each month before opting for any tenor period.
Continued usage of property
An additional benefit of mortgaging a property for a loan is that the individual doesn’t lose ownership of the asset. They can continue to utilize the property throughout the loan tenor. This can include both residential and commercial properties like office buildings, complexes, etc.
- Reduce repayment burden with part-prepayment or foreclosure facilities
Loan against property comes with the option of part-prepaying the loan amount without additional charges unless the applicant has opted for a fixed interest rate. Therefore, the individual can reduce the overall interest payable by prepaying a part of the loan amount.
Moreover, the applicant also has the option to foreclosure his/her loan, wherein they can repay the entire loan amount payable before the end of the tenor period. Applicants who apply for LAP from leading financers at a floating interest rate may not have to pay foreclosure charges.
Hopefully, these benefits will help an applicant understand what is LAP and why it is a dependable funding medium for those requiring access to a higher monetary sum.
Moreover, applicants can simplify their loan application process by applying for pre-approved offers. To check your pre-approved offer, provide your name and contact details.
Therefore, study the various factors and benefits of loan against property before sending a loan application to any financial institution. It will help the individuals access their repayment capability and credibility before applying.
Additional Read – How to Be a Successful Actual State Investor