Advantages and Disadvantages of Loan Against Property

You know that recently RBI came up with even strict rules, not just to protect the borrowers, but lenders too? You see, just a few years ago, the whole personal loan thing was on the rise, and that was a kinda limiting factor for the growth of many banks right here in India. And to eliminate that, or at least control that, RBI has instructed many banks in the country to set aside more capital. So yeah, it is true that getting a personal loan in India is kinda tough right now, but what else can you do? Well, another option you have is to actually get a loan against property, which could be a lot of help in your specific situation. But yeah, we know, you might be a little skeptical about it, right? It is understandable, but don’t you worry though, we are here to clear things up for you. Here we will be taking a good look at the possible advantages and disadvantages of loan against property. So that way, you’ll precisely know whether or not to give it a shot. Alright, here we go now.

Aspect	Advantages	Disadvantages
1. Interest Rates	Lower interest rates compared to personal loans or credit cards.	Higher interest rates compared to home loans.
2. Loan Amount	Higher loan amount can be availed compared to personal loans.	Loan amount is limited to a percentage of the property’s value.
3. Longer Tenure	Longer repayment tenure, usually up to 15 years.	Extended repayment tenure can lead to higher overall interest payments.
4. Flexibility	Flexibility in using the loan amount for various purposes like business expansion, debt consolidation, etc.	Risk of losing the property in case of default.
5. Quick Processing	Quick processing time due to the presence of collateral.	Lengthy documentation process involving property valuation and legal checks.
6. Credit Score Impact	Helps improve credit score if repayments are made on time.	Defaulting on payments can severely impact credit score and result in foreclosure.
7. Tax Benefits	Tax benefits on the interest paid can be claimed under Section 24(b) of the Income Tax Act.	Tax benefits are not as favorable as those available for home loans.
8. Lower EMI	Lower Equated Monthly Installments (EMIs) compared to personal loans due to longer tenure.	Higher EMI compared to home loans due to shorter tenure.

Loan Against Property Advantages

1. Higher Loan Amount

First things first, when you opt for a Loan Against Property (LAP), guess what? You’re looking at getting your hands on a pretty hefty amount of cash. This is super useful, especially for those of you dreaming big, like maybe kicking off a major project or covering some hefty expenses. How much can you borrow? Well, that all hangs on how much your property’s worth in the market. So, the more your property is worth, the more money you can borrow, simple as that.

2. Enjoy Lower Interest Rates

Now, here’s a thing about LAP that’s sure to grab your attention, the interest rates are usually way lower than your average unsecured loans. Why’s that? Because it’s a secured loan. That means you’re putting up your property as a kind of safety net for the lender, which slashes their risk big time. This cool perk means not only do you get a loan that’s easier on your wallet, but your monthly repayments are more of a breeze too.

3. Get Some Tax Benefits

Here’s another sweetener, LAP can actually help you save some bucks on taxes. Under certain parts of the Income Tax Act here in India, you can wave goodbye to a chunk of your tax on the interest part of your loan. This could mean saving a pretty penny over time, trimming down the total cost of your borrowing.

4. Stretch Out Your Repayments

Flexibility’s the name of the game with LAP, especially when we talk about how long you’ve got to pay it back. Unlike other loan types, LAP usually gives you a longer runway to clear your debt. What does this mean for you though? Smaller monthly payments that don’t feel like a ton of pressure every month.

5. Use the Cash for Pretty Much Anything

Last but definitely not least, the freedom you get with LAP in how you use the cash is a huge plus. There are no strings attached here. Whether you’re looking to fund your kid’s big fat wedding, invest in their education, or maybe inject some cash into your business, LAP’s got you covered. This sort of flexibility lets you use the money in a way that fits your plans just about right, you know?

Loan Against Property Disadvantages

Here are some drawback of taking loan against the property:

1. You Might Just Lose Your Property

Okay, so the biggest thing you gotta worry about with a Loan Against Property is, yeah, you might just lose your property. This kind of loan needs you to put your property on the line as collateral you know? And if things go south and you can’t pay back the loan, the lender can legally snatch away your property. Imagine the chaos it can cause, especially if it’s your home sweet home, or a key part of your business.

2. Those Extra Costs and Fees

Now, don’t forget about the extra costs that come sneaking in. When you’re signing up for LAP, lenders will hit you with a processing fee, and guess what? This fee is usually a chunk of your loan amount. Add to that other sneaky charges like legal fees, valuation costs, and the money you spend on paperwork. All these can pile up, making your loan way more expensive than you first thought.

3. It’s a Waiting Game

Getting approval for LAP? Oh boy, it’s not a quick game. Since your loan is tied to your property, lenders will take their sweet time checking out your property. They’ll dig into its legal status, figure out its market value, and double-check all the documents. Sure, this is the lender covering their bases, but it means you gotta wait longer to get your hands on the money, which is a bummer if you’re in a rush.

4. Those Tricky Interest Rates

Choosing a loan with a floating interest rate is like riding a rollercoaster. Sure, sometimes you might end up paying less interest, but other times, the rates can shoot up, depending on the market’s mood swings. But it is usually between 10 to 16.5%, well, with most of the banks in India at least. This can make planning your finances a real headache, with your EMI amounts bouncing up and down each month.

5. Tough to Get In

Finally, getting approved for LAP isn’t a walk in the park. Lenders will thoroughly check your credit score, how stable your income is, and the value and condition of your property. If your credit score isn’t great, your income’s all over the place, or if your property isn’t exactly top-notch or is looking a bit rough, getting that LAP approval might be a tough thing, well, at least for most of us regular folks, you know?

FAQs

Q1. What Are The Eligibility Criteria For A Loan Against Property?

Ans: So, you’re eyeing a loan against your property, right? Well, here’s the deal: you’ve gotta be anywhere between 21 and 65 years, and oh, that property? It needs a clear title, no ifs, ands, or buts!

Q2. With LAP, What Is The Usual Loan to Value Ratio?

Ans: Now, when we talk about the usual Loan to Value (LTV) Ratio, the banks are playing it around 60% to 70% of what your property’s worth in the market. That’s the ballpark figure they’re willing to loan out.

Q3. What Is The Typical Tenure With Loan Against Property?

Ans: Alright, let’s talk timelines. Generally, LAP’s gonna stick with you for up to 15 years, give or take. Of course, each bank’s got its own beat, so expect some variations on that front.

Q4. Can I Prepay LAP?

Ans: You absolutely can prepay this loan. It’s a pretty neat way to lighten your debt load a bit quicker than planned.

Q5. What Purpose Should I Declare For Loan Against?

Ans: Well, it totally depends upon you, like you could be using the amount for personal use, maybe investing in your business or something like that. Keep in mind though, that LAP can be used for various personal or business purposes, but the end use should be declared in the application.