Financial crises can strike at any moment, and having access to large amounts of money at the right moment can be a game-changer. A Loan Against Property (LAP) is a secured loan in which people can use their residential or commercial property as collateral to obtain funds. In contrast to personal loans, which carry high interest rates and short repayment tenures, loan against property favour borrowers by providing higher amounts at lower interest rates and longer repayment cycles.
If you are curious if loan against property benefits are greater compared to other forms of borrowing, this article can enlighten you on why LAP is the preferred financial tool. Below are the top 10 reasons for availing a loan against property and why it can be a good choice for meeting financial requirements.
1. Availability of High Loan Amount
One of the largest benefits of a loan against property is that it enables borrowers to borrow a huge sum of money against the market value of their property. The lenders provide up to 60-75% of the value of the property, which is a great choice for big expenditures like business growth, medical bills, or study abroad.
Contrary to unsecured loans, whereby the amount advanced for a loan is limited against earnings and creditworthiness, LAP offers higher finances without having restrictive limitations. This helps borrow what is adequate to address necessities without resorting to taking out many loans.
2. Low Interest Rates Against Personal Loans
Interest rates are responsible for establishing the total cost of a loan. One of the most significant loans against property advantages is that it involves smaller interest rates than personal loans and business loans. Because the loan is secured with a property, it is a low-risk lending option according to lenders, and they provide competitive interest rates as a result.
Although personal loans can be as high as 12-24% interest, LAP interest rates tend to be between 8-15%, which is a more economical way of borrowing. The reduced burden of interest ensures that EMIs are light and the repayment journey is smoother.
3. Longer Repayment Tenure for Easy Repayment
One of the key advantages of loan against property is its long and flexible repayment term. In contrast to personal loans that come with shorter repayment periods of 5-7 years, LAP has tenures that last as long as 15-20 years, depending on the lender policy and the borrower’s eligibility.
This longer repayment term helps the borrowers organize their finances properly and repay the loan in the form of small EMIs. It lessens the monthly financial outgo drastically, thus making LAP a viable option for both salaried and self-employed persons.
4. Multipurpose Loan Usage
Unlike home loans, which are tailored for the purchase of property, a loan against property benefits borrowers by enabling them to utilize the funds for various purposes. Lenders do not restrict the usage of funds and offer full flexibility to borrowers.
A few of the popular uses of LAP are:
- Working capital or business expansion requirements
- Medical emergencies and medical bills
- Children’s education, including higher studies
- Consolidation of debt to pay high-interest loans
- Wedding costs or significant life events
Such flexibility renders LAP an all-around money instrument that can be applied for both personal and commercial purposes.
5. Loan Approval Based on Property Value
Contrary to unsecured loans, where credit ratings and income are predominantly relied upon, LAP is also mostly based on the value of the mortgaged property. Although the financier still considers the borrower’s credit profile, the major consideration factor for loan quantity and approval remains the worth of the property.
This puts LAP within reach of those who might have lesser credit ratings but hold high-value assets. As there is collateral security, the lenders are ready to lend money to borrowers of different credit profiles.
6. Keep Your Property Ownership
One major loan against property benefit is that the borrowers retain ownership as well as possession of their property while taking the loan. In contrast to selling a property to generate funds, LAP enables people to use the value of their property as collateral without surrendering the title.
As long as the loan is repaid on time, the borrower can keep using the property for residential or commercial use without any limitation. Once the loan is fully repaid, the property is debt-free.
7. Fast Loan Processing and Disbursal
Time-bound financial requirements demand fast access to funds. The benefits of loan against property is that its approval and disbursal is relatively speedier than other secured loans such as home loans.
As the loan is secured against the property, the lender feels more assured in sanctioning the loan at a fast pace. The majority of banks and NBFCs sanction LAP proposals between 7-10 working days, thus being a good choice for emergency financial requirements.
8. Tax Relief on Loan Against Property
Although LAP does not have tax relief on repayment of principal like home loans, lenders can benefit from tax deductions under Section 37(1) of the Income Tax Act if the loan is taken for business purposes. Under such circumstances, the interest paid towards the loan is a business expense and can be claimed as deduction from taxable income.
For salaried people, if the loan is available for certain purposes such as buying another property or investing in a business, partial tax benefits might be available. It is recommended to seek an opinion from a tax advisor to know how to maximize tax savings with LAP.
9. Balance Transfer Facility for Lower Interest Rates
A significant loan against property benefit is the option of transferring the loan balance to another lender offering lower interest rates. Many borrowers initially take a LAP at prevailing market rates, but as interest rates decrease, they can shift their outstanding loan to another financial institution at a lower rate.
This feature saves borrowers on interest expenses in the long run. Balance transfer facility is available from most banks and NBFCs at negligible processing charges, so it proves to be a helpful feature for the borrowers in bringing down their expenses.
10. Low Prepayment Charges and Foreclosure Benefits
Prepayment and loan foreclosure tend to invite high costs, particularly on personal loans. But one positive aspect of a loan against property is that even most lenders enable borrowers to do prepayment without any or negligible penalty, particularly if the loan carries a floating rate of interest
This implies that when the borrower has an unexpected financial windfall, for example, a bonus or investment return, you can partially or completely prepay the loan to lower the interest burden. Such flexibility assists in lowering the cost of the loan and settling the debt earlier.
Conclusion
Loan against property is one of the best methods of availing huge funds while holding on to your property. From lower interest and high loan value to longer loan tenures and tax benefits, LAP has numerous financial benefits. In contrast to unsecured loans with high interest and stringent eligibility, LAP provides a cheaper and flexible means of borrowing.
If you need money for business growth, medical treatment, higher studies, or credit card debt consolidation, borrowing against property can be a wise financial decision. It provides a balance of affordability, flexibility, and ease of use, which makes it one of the most sought-after secured loan products in India.
Before applying for LAP, it is crucial to compare various lenders, assess interest rates, and be aware of the repayment conditions in order to make the most informed financial decision. With proper financial planning, a loan against property can be an effective tool to further your personal and business objectives efficiently.
