As far as funding is concerned, there are numerous secured and unsecured options to pick from. A loan against property is a commonly sought-after financial instrument in which the borrower keeps their property as collateral and avails funds against it. Pledging property as collateral would not be an issue if the borrower has a robust repayment plan.
Compared to other loan types, a property loan is an intelligent tool that provides support in the long run while maintaining stability. Read on to find the reasons why you should consider taking a LAP loan.
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1. An Ample Loan Amount
When applying for a loan against property, the individual pledges their owned property as collateral. The lenders evaluate the property and sanction a loan amount ranging from 60 to 80% of the property’s market value. The loan amount may vary depending on whether the pledged property is commercial or residential and whether it is rented, vacant, or occupied. Since it is a secured loan type, there is minimal risk involved for the lender. So, they may offer a sizable sum according to the property’s price. This is the primary reason it is a preferred loan type for those who need funds for a medical emergency, education, wedding, or business expansion.
2. Lower Interest Rate
As already mentioned, a mortgage loan bears the minimal risk for the lender. If the borrower fails to repay the loan, the lender can recover their loss by foreclosing the property. Therefore, they offer nominal interest rates on this loan type. The lower interest rate on these loans greatly aids the borrower’s repayment efforts, reduces the interest outgo, and decreases the total loan cost. Such benefits are not accessible with other collateral-free loan types since they usually come with higher interest rates to reduce the risk involved.
3. Easier Repayment with Longer Loan Tenure
One important reason to opt for a property loan is that it has extended the tenure of up to 15 years. Since it involves a large sum according to the property’s value, the longer loan tenure makes repayment easier in smaller EMIs. The low-interest-rate coupled with a long term makes the borrower’s repayment more affordable and efficient.
An EMI calculator is an excellent tool to calculate EMIs for different loan terms. Long tenure leads to smaller EMIs, while a short tenure results in a hefty EMI amount. The borrower must assess their repayment capacity and select a loan tenure with EMIs suitable to their monthly budget.
4. Comfortable Management of Big-Ticket Expenses
A mortgage loan aids the comfortable management of big-ticket expenses. This is because the loan amount is high, the interest rate is low, and loan tenure is lengthy. Medical emergency expenses, weddings, education, and business expansion are typical expenses covered with a loan against property.
Thankfully, the ample loan amount covers these big-ticket expenses comfortably without draining the borrower’s savings. When they need a significant amount of money, they can unlock the value of their owned property and repay the borrowed amount in easy EMIs. Consequently, they get their required funds without liquidating their assets. As far as they repay their loan EMIs on time, the asset stays safe with the lender, and the borrower may continue using the property as usual. However, it is crucial to evaluate expenses and borrow prudently to avoid unnecessary loan burdens.
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5. Tax Benefits
Another reason to take a loan against a property is that it offers tax benefits on the interest amount paid. However, these benefits are applicable only if the borrower uses the loan for specific purposes. Here is a breakdown.
- Under Section 37(1) (Income Tax Act, 1961), the borrower gets a tax deduction when using the loan for business purposes. The tax benefits apply to the processing fees and interest paid.
- Under section 24(B) (Income Tax Act, 1961), the borrower may claim a tax deduction of up to ₹ 2 lakh on the interest paid if they use the loan for residential property purchase.
Remember, there are no tax benefits if the borrower uses the loan for personal expenses like weddings, vacations, or education.
These are the top reasons many borrowers opt for a property loan over its unsecured counterparts. Additionally, these loans are more accessible to avail of with minimal documentation requirements. Flexible repayment terms and lower interest rates make borrowing a pleasant experience while allowing efficient cash flow management and keeping saving intact.