Consider These Factors When Applying for A Loan Against Property
In case of a monetary crisis, most people run to family and friends for help. However, if the crisis is such that it requires a huge sum of money to be solved, the best option is to opt for a loan. By taking credit from a bank or any other financial institution, we can get immediate access to required funds.
In any case, picking the correct loan to meet our requirements can some time become a burdensome assignment, especially when so many options are available in the market. A loan against property (LAP) is a good credit option available to borrowers in need. LAP, also known as mortgage loan, is a kind of secured loan. In this type of loan, a borrower needs to pledge a property registered in his/her name as security. In return, the lender gives the borrower a high-value loan at considerably cheaper interest rates.
If an individual is in urgent need of funds and is not interested in selling an asset to arrange for funds, then he/she can apply for a loan against the property. However, in order to get maximum benefits from this financial instrument one must keep in mind the following factors before applying for loan against property.
- Principal Amount
Under LAP, an individual is eligible to borrow high-value loans by pledging a property, such as an empty plot, land, home, or agricultural land, as security. However, it is of prime importance that one borrows only to meet one’s needs. Borrowing in excess of what is needed will unnecessarily increase your EMIs and put you under unwanted financial stress, a situation you must avoid at all costs.
- Rate of Interest
The interest rate offered on your LAP varies from lender to lender. So, it is an ideal practice to compare all the options provided by different financial institutions before applying for a loan against property. One must also consider the option of the type of interest rate (fixed/flexible) in order to maintain the affordability of the loan. Interestingly, NBFCs offer a cheaper rate of interest as compared to other financial institutions on all kinds of loans, including loans against property.
- Loan to Value ratio
The amount that you are eligible to borrow from a lender depends on the “loan to value” ratio, which is the ratio of the maximum loan amount the borrower is eligible to borrow vs the valuation of the property in the current market.
- Tenor of loan and EMI
An individual must cautiously select the tenor of the LAP loan. A short tenor will increase your monthly EMIs, thereby probably diminishing the affordability of the loan. However, a shorter tenor will reduce the amount to be paid in interest. On the other hand, a long tenor will reduce your monthly EMIs, thereby increasing the affordability of the loan. However, it will also increase the amount to be paid in interest for the loan. Hence, one should try to strike a balance between both.
- Tax Benefits
An individual can avail of tax benefits of up to INR 2 lakhs under section 24B of the Income Tax Act of 1961. If you are utilizing the loan amount to purchase a land and build a home then you are eligible for tax exemptions.
Must read: Factors By Which Loan Against Property Is Better Than Personal Loan
A loan against property is an excellent tool to arrange money in times of need. However, one must plan their loan against property repayment journey well in advance and very carefully to avoid any problems later. Keeping the above-discussed factors will certainly help in this regard.
