What Is Loan Against Property? A Smart Way to Unlock Your Assets

What Is Loan Against Property? A Smart Way to Unlock Your Assets

One of the most easily accessible and unlockable funds in the present challenging economic situation, the loan against property, is that kind of loan whereby you take up a loan using your property's value without needing to sell it. In this piece of writing, we want to discuss what a loan against property actually is. 

What is a Loan Against Property?

A loan against property is one of the secured loans. What is the meaning of such a loan? This property loan type includes pledging a residential or commercial property to the lender, securing an amount of money calculated from its value. So basically, it gives you much more than an unsecured loan or a personal loan type. 

Important Characteristics of Loan Against Property

  • Loan by Security: It is a secured loan, and the power rests completely with the bank if the borrower defaults and sells the security as well.

  • High Loan Amount: Generally, the LAP amount is much higher than that of an unsecured loan. The amount is provided on the basis of the market value of the property and generally ranges from 60% to 80% of the actual value of the property.

  • LAPs have flexible repayment tenures:  These usually come between 5 years and 20 years, depending upon the terms and conditions of the lending authority and the financial standing of the borrower.

  • Lower Interest Rates: LAPs are secured loans. They normally tend to have relatively lower interest rates compared to other unsecured loans like personal loans. The interest shall range between 9% and 15% annually, according to the lending bank and the creditworthiness of the borrower.

  • Tax Benefit: The interest paid on the loan for business purposes is allowed as a deduction for income tax purposes under section 37 of the Income Tax Act.

Here is how to get a LAP

  • Application: Applications for loans are made using relevant borrowers' papers such as property papers, proof of income, and identification.

  • Appraisal of Property: The bank is supposed to appraise the property and value the stated property. Normally, it is usually the LTV that goes between 60% and 80%.

  • Approval and Disbursement: Once a loan gets approved for an applicant, it is disbursed fully or in instalments towards the proposed use of the loan.

  • Repayment: The borrower repays the loan in terms of equated monthly instalment during the tenure period. The amount to be paid in terms of EMI depends on principal loan amount, the rate of interest, and the tenure period.

  • Property Mortgaging: The property is mortgaged with the lender during the tenure of the loan. On repayment of the entire loan amount, the property is released from the mortgage.

Loan Against Property Eligibility

Though the loan against property eligibility criterion differs from lender to lender, there are many common factors that apply in all lenders. It includes:

  • Age

  • Income

  • Type of Property

  • Credit Score 

  • Loan-to-value 

  • Repayment Capacity

Property Loan Eligibility calculator 

It may really work great to figure out how much the loan can help him fetch. He can determine the amount using it based on income, age, credit score, and value of your property. Here is how you use a property loan eligibility calculator:

  • You will have to input some basic information like your age, your monthly income, existing liabilities, and the value of the property you would pledge.

  • Property Details: It shall mention the type of property – whether it is a residential one or a commercial one, along with market value and locality. It may vary in the valuation of loan amount for the locality.

  • Loan Term and Interest Rate: You'll also be asked to provide how many years you would require for a loan as well as the interest rate you want. Most sites have interactive calculators that allow you to vary your terms and rates so that you can understand those effects.

  • Eligibility Quantum Receive: Once you fill up your complete details, then only this loan eligibility calculator shall provide you with quantum against which you can borrow with their help based on the detail put in

 

Use your loan for the property of the eligibility calculator to come up with how much you would presumably be able to repay thereby you have to chart the finances before like this alone.

Benefits of Loan against property

  • Large Amount: With LAP, you can easily borrow a huge amount than is possible with unsecured loans, so it is rather good if you have major expenditure funds like funding your business or education.

  • Lower Rate of Interest: Being a secured loan, the LAP is associated with lower rates of interest than unsecured loans and saves one money in the long term.

  • No Sale of Property: a LAP does not imply selling the property and he can still hold onto the ownership and yet access for fund requirements.

Loan Against Property Disadvantages

  • Risk of Loss of Property: The loan is tied to property. In case the person does not repay the loan, then the lender is allowed to keep the property.

  • Processing Time: LAPs consume more processing time than unsecured loans as the lender has to evaluate the worth of the property and must conduct due diligence on the same

  • Low Loan-to-Value (LTV) Ratio: Though loan amount is much higher than an unsecured loan, it would still be lower than the real value of property involved. Therefore, you would have to pay quite a good portion of the real value for this loan in advance. 

Conclusion

It is that tool which will unlock a lot from your property without selling it. It gives huge amounts of money at much cheaper interest rates, thus becoming a good option for all those who need the funds for business, education, medical emergencies, and so on and so forth. Tools like property loan eligibility calculator will help in checking the eligibility and proper decisions regarding the amount that one can borrow. 

However, the key is to understand the loan terms and conditions and check the feasibility of repaying the loan so that the loss of property does not haunt anyone. Proper planning with the right understanding makes this smart loan against property worth it.

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