A loan against property or LAP is a popular concept, wherein an applicant can borrow a large sum of money against a property. Loan against property is considered more secured loan that can be used to fund a variety of purposes such as funding education, wedding, buying house and many more.
Most financial institutions offer a LAP Loan for relatively larger sums of money as properties are considered secure collaterals.
Generally, the loan amount that financial institutions approve depends on the applicant’s income so that the EMI does not exceed 60% of their monthly income. Before we move on to the benefits, here are some important points to consider before availing a loan against property.
Factors That Affect Loan against Property Eligibility
Regular Flow of Income
One of the primary factors is a steady source of income to ensure that home loan EMIs will be paid consistently.
Age of the Borrower
The applicant’s age plays a critical role in judging the ability of loan repayment. If the borrower has reached their retirement age of 60 or is aging nearby in the coming few years, then the chances are that the application will get rejected.
In such a situation, the borrower can always try for loans that come with a relatively shorter duration, which is likely to result in a higher EMI.
Poor Credit History
A poor CIBIL score is the last thing a borrower would want while applying for a LAP Loan. As lenders investigate the repayment ability of borrowers, the credit history has to support it.
Late payments and defaults in payments affect the credit history. So, here the chances of the application getting rejected are higher.
In property loan the repayment tenor is longer, which results in lower EMIs. In case a borrower has a low income, they can opt for a longer tenor and increase their chances of a successful outcome.
Major Benefits of a Loan against Property
Some of the major benefits of a loan against property are as follows.
#1 Flexible Loan Amount
The loan amount a borrower gets via a loan against a property is based on the market price of their property. It could be as high as Rs.5 crores. So, a loan against property is an easier and more effective way to get a significantly higher amount for an existing property.
#2 Competitive LAP Interest Rates
Since a loan against property is a more secured loan, the LAP interest rates are relatively lower. This also results in lower EMIs and reduced financial burden.
#3 Reduced Financial Burden
A loan against property often offers flexible repayment tenors that may even go up to 20 years when compared to a personal loan, which usually goes up to 7 years. This lowers the financial burden on the applicant.
#4 Improved Tax Benefits
• Following Section 31 of the Income Tax Act (ITA), a borrower can avail of tax benefits on the interest amount for a LAP.
• Following Section 24 of (ITA), tax benefits of up to Rs.2 lakh can be availed of on income for cases in which the applicant uses the LAP to build a new property.
#5 Property Options and Optimal Usage of Property
To avail, the applicant can use a commercial property, self-occupied house, residential property, or even a piece of land. This flexibility makes the loan application process easier and also helps utilize an existing property more efficiently. Even better – the borrower can continue to use the property.
#6 Easier Approval Process
Given the availability of security, a LAP is easy to avail of compared to other loans. The documentation requirements are minimal. Some financial organizations even provide doorstep facilities.
#7 No Limitation on Loan Usage
One can use loan against property loan in any manner what the person wants just excluding illegal usage. So, a borrower can use it for home renovation, higher education, medical expenses, and marriage.
#8 No Pre-Closure Charges
The pre-payment for a loan against property is typically not charged or penalized by the financial lender. This makes closing your loan against property relatively easier and also hassle-free.
#9 Higher Numbers of Eligible Borrowers
Differences in eligibility exist for individuals and businesses. However, the factors used for both categories are easy to satisfy. These parameters include minimum income and age and credit history.
A loan against property is an easy way to finance goals for both businesses and individuals. It is a more convenient way to avail of flexible loan amounts with better interest rates, relatively lower EMIs, high repayment tenors, and easy eligibility. The financial burden on the borrower tends to be lower.
It also permits the borrower to put an existing property for constructive purposes. If you are looking at converting a property into a lucrative source of income, you can get in touch with any of the leading lenders today to explore your loan against property options.