Got any cash emergency at hand but not adequate funds in your savings bank account? Do not break your head for this; it is because money is already in your home! By this, we are referring to your home property. Why let that be idle? Avail a loan against property and address all your instant cash exigencies. Of course, if you are a little hesitant about keeping your property as collateral, opting for a personal loan can be an alternative.
So, what is meant by a loan against the property of LAP? As the name suggests, a loan against property is a loan that is secured in nature that can be taken up against a commercial building or self-occupied residence. Being a secure loan, a loan against a property’s rate is usually very low than other credit options. However, due to its structure of lending, their interest rates tend to be slightly higher than home loan rates. For instance, SBI Loan Against Property ranges anywhere between 8.40 percent p.a. and 8.80 percent p.a., while SBI home loan ranges between 6.65 percent p.a. and 7.55 percent p.a. in the case of HDFC LAP, the interest rate may range anywhere between 8 percent p.a. and 8.95 percent p.a. while the HDFC home loan rates may range anywhere between 6.75 percent p.a. and 7.65 percent p.a. The eligibility parameter for availing loan against property approval is even liberal because the property serves as security or collateral. The loan repayment tenure can range anywhere between 5 and 15 years.
Should you opt for the loan against the property option?
For anyone who owns a commercial property or home and is looking for a loan, availing of a loan against the property must be the initial choice, particularly if you are a business owner. For starters, as they are business owners with a property at hand, they will not need to look for any other expensive sources. And note that the processing of the loan will also be way quicker. Few lenders might even provide you with an overdraft option against your property. This is best for you as interest is charged just on the withdrawn amount.
Let us discuss some of the crucial advantages of availing loan against property (LAP):
Can be used for a multipurpose reason: Same as a personal loan, a loan availed against a property can be used for any purpose. You do not require to mention the reason while availing of the loan. So, may it be your child’s higher education or wedding expenses, or home renovation expenses, you can take out a loan against your property for any of your financial requirements.
Low rate of interest & high repayment tenure: A loan against property offers a lower rate of interest than other loan options. They generally range between the bracket 8 percent and 18 percent p.a. There are 2 kinds of rate types you can select when availing a loan against property. These loan types include a fixed rate of interest and an adjustable-rate of interest. Additionally, such loans offer a longer repayment tenure that can go as high as 15 years. It means you will have adequate time to repay your loan.
Simple to avail: HDFC Loan Against Property can be taken up by salaried, self-employed or professionals who hold properties registered in their name and which are free from legal problems. Note that the property can be commercial or residential or any empty land plot. Processing such loans are faster than other credit options, provided you have all the crucial documents handy. And many of the lenders generally attach just a small processing charge of up to 1 percent of the sanctioned loan proceeds.
Low EMIs: Since the loan’s interest rate is low, your month-on-month instalments too will be below. Apart from this, you will get to select the loan EMIs as per your financial repayment capacity.
Refinancing: If the property value increases over a time period, a refinancing option can be utilized for increasing the loan amount. This specific feature again is helpful for businessmen or entrepreneurs who are on an expansion spree. They can utilize the same property to build their business continuously.
Lastly, the property that your mortgage on loan against property continues to be under your ownership. However, note that in case you are not able to repay the loan, the lender has full right to sell the property to avail of the missed repayments.
Besides the benefits, there are certain advantages which you must consider. These include:
Loan quantum: Banks usually do not endow loans over 60 percent of your home property value. The loan quantum sanctioned is low because the lenders value your property at a lesser value than the actual market price.
Reluctant to sell: In India, the property is looked upon as one of the most prized possessions, and most of you are reluctant to pledge the property even if you are in instant need of huge funds. After all, none of you would want to lose the possession of your property, right?
Accessibility: New companies or businesses usually cannot get access to a loan against property. For accessibility to loan against property option, they must at least be in existence for nearly three years. Salaried individuals, of course, can access a loan against property option if they are employed for more than a year.
Not everyone’s cup of tea: Lastly, this loan type is not for the ones who cannot effectively manage their finances. Opting for this loan type may make you end up losing your property if you do not make constant monthly repayments.
In a nutshell, availing of a loan against property comes with its own set of benefits and drawbacks. It is one of the simplest and best ways of raising funds when you are in financial need. However, the final decision rests in your hands – if you think you can manage the loan, you must go for it then. However, if you do not want to risk your property, then you can opt for an unsecured credit option like a personal loan or a loan against a credit card.