Financial emergencies often arise without warning. The best way to handle such a monetary crunch is by getting external support through a loan.
Among the various loan options available to borrowers, a loan against property or a LAP loan is the most sensible. It is a secured loan that requires keeping a residential or commercial property as security with the lender.
Lenders’ interest rates on loans against property are relatively low due to their secured nature. An individual can calculate the expected monthly payment using a LAP EMI calculator.
How Can a Loan Against Property Benefit You?
Here are some of the main advantages of taking a loan against property over other types of loans:
- LAP loans have a lower interest rate: Lenders feel confident about the recovery of the money they lend under a loan against the property since they have the security of the borrower’s property. Therefore, they offer loans at lower interest rates than other loans.
- Unchanged possession of the pledged property: The best feature of a loan against property is that the borrower continues to enjoy the pledged property’s possession. He can continue to live in his residential property, draw rent from it, or use their commercial property as before.
- Partial disbursement of the loan amount: Another benefit of a loan against property is that the borrower can request a partial disbursement of funds. They can get the money in more than one tranche and pay the interest only on the amount.
- Longer loan tenure: Unsecured loans usually have short tenures to enhance the lender’s safety. On the other hand, a secured loan, like a loan against property, has an extended duration. It gives more room to the borrower to repay the loan comfortably and lowers the monthly payment amount.
- Higher loan amount: A loan against property can fetch a higher amount for the borrower since it is given against the security of a property. A higher loan can be useful for big-ticket expenses like complicated surgeries, weddings, and business needs.
5 Essentials of a Loan Against Property One Must Consider
A person wanting to apply for a loan against the property must consider the following:
- Valuation of the pledged property: A loan seeker can offer various properties to avail a loan against property. The lender gets the property’s market value evaluated per the current market rates. Usually, a borrower can expect to get up to 70 to 80% of the property’s market value as a loan, based on the borrower’s documents and the property valuation. They may receive different loan amounts against the same property from various lenders.
- Rate of interest: Interest rates on loans against property are different from various lenders. It is advisable to do market research to find the lender with the most economical interest rates for a loan against property. Use a LAP EMI calculator to see how much EMI (Equated Monthly Instalment) you will have to pay to different lenders.
- Loan repayment tenure: Borrowers can negotiate a longer repayment tenure on their loan against property. It is especially beneficial for borrowers who want to keep the monthly payments towards the loan on the lower side. It is, however, important to remember that a longer loan duration results in a more expensive loan, even though the monthly payment will be less. Strike a balance between the EMIs and the tenure.
- Loan processing fees: When you apply for a loan against property, the interest rate is not the only cost. Lenders charge a loan processing fee on your loan application processing. Always find out the loan processing fee a lender charges. It may add considerably to the loan’s overall cost.
- Ownership of property: Lenders may reject your property papers if there is no clarity on the property’s ownership. They do not provide a loan against a disputed property or a property with incomplete documents.
Keeping these essentials in mind, getting a loan against property can be easier and more lucrative.