Over the years, loans against property or LAP have gained immense popularity. It is a secured and multi-purpose loan that you can avail from any lender of your choice using the real estate property as collateral. Depending on the lender’s policy, you can borrow up to 50% of the property’s value. However, if you have an existing relationship with the lender you can avail up to 60% of the property’s value.
Another significant feature of property loan is that you can pledge both commercial and residential property as collateral provided if you have the necessary documents to prove ownership. While many lenders in India offer LAP, you must be careful before applying for the loan. Here are a few vital factors that you must keep in mind.
·Does the lender have any restriction on loan usage?
One of the significant highlights of LAP is that you can use the amount for any purpose you want; the lenders do not have restrictions on the end-user. You can use it for your business and personal expenses like buying new machinery, business expansion, paying for your child’s education or marriage, starting a new business, taking a world tour with your spouse, etc.
·What is the interest rate?
The interest rate levied on the loan against property varies based on a variety of factors such as loan amount, credit history, income, and the type of property you pledge. Generally, the lenders charge a higher interest for commercial properties than residential property.
When you are availing of a loan against a property, it is critical to compare the offers from different lenders so that you get the loan at the most affordable interest rate. This will ensure that you don’t face any hassles while repaying the amount. Remember, even a small difference in the interest rate can make a huge difference in the overall interest payout in the long run. It will help you save a significant amount.
·What is the repayment tenure?
Most lenders in India offer loans against property for a maximum period of 15 years. It is a long-term loan choice as compared to availing of a personal loan. The long duration of the LAP ensures that the EMI is affordable, and you can easily repay the amount throughout the tenure.
Based on your repayment capacity and the amount you borrow; you can negotiate the repayment tenure with the lender and choose the right period to suit your needs.
·What are the charges and other expenses?
This is another critical factor to consider while applying for a loan against property. When you borrow from any lender, you are obliged to pay certain fees, such as process charges, service charges, etc. These expenses can be significant, and you must factor in these amounts to determine the overall loan cost.
While you compare the loan offers from different financial organizations, take a close look at the various charges involved and choose the one where such charges are the lowest.
·What are the tax benefits?
Unlike other types of loans, such as home loans, or education loans, you cannot avail of tax benefits on loans against property. You must pay tax on the amount you are using to repay the loan.
Knowing the above factors will help you make the right borrowing decision while you apply for LAP.