With a variety of lenders offering numerous loan options, borrowers, these days, are spoilt for choice when looking for ways to arrange money. While many loans are tailored to meet a specific purpose, many secured loans are more dynamic in nature. Based on your requirements, you can pick between unsecured and secured loans. Property loans and personal loans are great examples of secured and unsecured loans, respectively. However, a loan against property has the perks that make it a more desirable pick among borrowers.
Top Benefits of a Property Loan
Here is a quick look at some of the upsides of availing a loan against property:
A Large Sanction Amount
As you pledge your property or asset as collateral by opting for a property loan, the lender sanctions a huge amount varying between 70-75% of the current property value. This usually depends on the type of the property i.e. whether it is a residential or a commercial property, rented, vacant, or occupied. Some lenders offer a sizable loan amount up to Rs.5 Crore, which can be utilized for a variety of purposes.
Lower Rate of Interest
A property loan is a secured loan, which is why the lender offers a nominal rate of interest on it. Furthermore, a reduced loan against property interest rate makes your repayment efforts easier by lowering the interest outgo and, in turn, the total loan cost. You will miss out on this benefit if you go for a collateral-free loan, as the interest charged on those loans are much higher.
Longer Tenor for Repayment
One of the key benefits of choosing a loan against property is that you get a repayment option that extends over a longer tenor of up to 18 years. This is particularly beneficial if you have a huge sum to pay because it gives you enough room to plan your monthly installments. Moreover, a longer tenor combined with nominal interest rates makes property loan an affordable and convenient loan option.
Income Tax Benefits
With property loans, you can enjoy income tax benefits on interest payments. However, such benefits are applicable only when the sanction is used for a specific purpose. For example – Under Income Tax Act Section 37(1), 1961, you are allowed deductions on the interest paid if the property loan is utilized for business purposes. Similarly, Income Tax Act Section 24(B), 1961, allows deductions on the interest paid only if the loan is used to buy residential property.
Fund Massive Expenses
A LAP loan helps you manage huge expenses with ease. This is because such loans offer a sizable amount at low interest rates for a longer period. The sanction covers expenditures of buying or renovating a house, funding weddings or higher education, exorbitant vacations or medical bills, and debt consolidation, which would otherwise claim a huge chunk of your savings.
The benefits mentioned above are the primary reasons why several borrowers today are keen on choosing a secured loan against property instead of other financial options. However, be prudent when borrowing a loan amount while keeping these benefits in mind. Borrow only as much as you can afford to pay back and ensure the safety of your collateral.
You can use a property loan calculator to evaluate your payable EMIs using these simple steps:
- Compute the loan amount you want to borrow
- Enter the interest rate
- Enter the repayment tenor
An online calculator is a user-friendly tool that can help you plan and manage your monthly instalments better.
Know All About Property Loan Eligibility
Unlike unsecured loans that involve multiple eligibility terms, property loan eligibility and documentation are straightforward.
To apply for a loan against property, you will need to:
- Be between the age of 28 years and 58 years (for self-employed individuals, the age limit is 25-70 years, as per RBI guidelines)
- Be a working professional in a private or public company or an MNC with at least 3 years of experience
- Be a resident of India
A Final Word
Choosing the right lender with a good financial record also plays an important role. Before applying for a loan against a property, evaluate the lender’s reputation and loan terms to get your hands on the best deal.