The loan you seek against property is a secured amount wherein the commercial or the residential property is used as collateral with the bank. It is a secured loan in which the property is used as a legal asset. Although you can pledge your residential or commercial property to obtain the amount, putting the latter as collateral makes more sense. You can use a self-owned piece of land or property or even rented commercial or residential premises. The amount that can be drawn depends largely on the valuation of the property, but the loan amount cannot exceed the market value of your home. Business is one of the common purposes for which you may want to get this amount even though it can be used for everything right from educational expenses, wedding, or travel.
Contrary to the regular home loans, the LAP or loan against property includes a flexible tenure. While the tenure of the former is about thirty years with most of the banks, the latter offers about fifteen years. For LAP, the lenders usually choose about 60-65% of the entire value of the property and the borrowers can choose to repay flexibly, transfer the loan, pre-close the amount or make part payments before the tenure ends. What are a few things you must know before seeking a business loan against property? The following points will highlight.
Approval of the loan
The property is the only asset that is tracked for the approval of the loan and the lenders evaluate your eligibility through a bunch of parameters. Some of the factors influencing the approval are repayment history, credit score, and income. The representatives of the financial institution are going to evaluate the property at first before approving the loan and most of them will require you to submit the property-related documents. They are returned when the principal and the interest amount is paid in full. The tenure you choose depends largely on the size of the loan and your capacity to repay it.
As far as the tax benefits of the LAP’s are concerned, there is not much you can get. If you have an existing home loan currently running against which you avail the LAP, you can claim tax benefits on that. Whether it is pre-closure or part payment, there are no additional fees or charges that the LAP attracts. You can make several part payments according to your convenience and pre-close the loan before the tenure ends.
Co-applicants of the loan
If the property against which you seek the loan amount is owned by more people, they can automatically qualify as the co-applicants. In case of properties that are owned by multiple people, they must be informed before seeking the loan and their signatures are to be obtained on the documents of the loan.
Consequences of the property rates
One of the major risks of LAP is the plummeting property prices and quite naturally the lenders in this segment are struggling with the non-performing assets. It is only normal for the property prices to fluctuate and the lenders can ask for additional collateral due to the meltdown in the prices of the property. However, there are fewer chances of a complete crisis to emerge in the future so LAP is still a profitable prospect for the non-banking financial institution. Keep this in mind before you go ahead with your plan to get a personal loan against the property to make the right choice.
Coping with financial setbacks
Financial trouble can emerge at any time and in most of the cases, they are going to arrive at the wrong time. People often try to compensate these situations with the help of an emergency fund and several others are forced to rely on options that are not wanted such as asking for money from friends or relatives. With LAP, you will get a better opportunity to mitigate your needs. As the loan is obtained keeping the property as collateral, the interest rate is usually lower than what you may have to pay for availing a personal loan. While the interest rate is between 12-15%, the interest rate for the personal loan is around 15-25%, which is way higher than normal.
Easy to get and no pre-payment charges
You can close the loan amount any time without any pre-payment charges as lenders do not charge additional amounts for closing the loan before the tenure. As it is a secured loan amount in which you pledge your commercial or residential property, the banks are more willing to pay the loan amount. While the tenure of this loan is generally high, you can pay lower EMI. For people who cannot afford to pay a large EMI amount, the longest tenure and the lower amount of monthly installments are ideal for them.
The loan against property is a powerful tool for debt consolidation as well. If you have a small car or property loan along with a few unsecured loan amounts, you can easily avail this loan amount to consolidate your debts.