Is it Cost-effective to Avail Loan Against Property?
Before choosing a LAP, evaluate your reimbursing capability. Any avoidance in repayment will have an opposing effect on your credit score, and of course you will be accountable to pay a penalty.
To calculate suitability, a lender will look at a certain percentage of the market value of your property and your repaying capacity. Characteristically, banks and NBFCs give only a percentage of the market value of your assets as the loan amount. The lender will also look at your repaying capacity by taking into account your income minus other equated monthly installments.
There is also an age limit to take the loan which is 60 years if you are a salaried individual and 70 years if you are self-employed. The minimum loan amount you can get is Rs. 2 lakh, which varies across financial institutions.
In simple language, Loan Against Property is a secured loan which you can get access to in lieu of any residential or commercial property that you own wherein your loan amount is highly dependent on the market value of the property.
Yes, as compared to other funding options Loan against Property is much inexpensive.
Key Attributes of Loan Against Property:
- Secured Loan at a Low Rate of Interest
In case of LAP, your loan is secured by your property which you mortgage with your lender until your debt is cleared. Since the lender has his loan amount secured, it results in a lower rate of interest which may range from 9.25% to 15% depending on certain parameters.
- Secured Loan with Longer Tenure Period
Since Loan against Property is a secured loan, lenders are able to offer longer tenures for repayment. Tenure on LAP ranges between 5–15 years. This also varies by the collateral type offered for the mortgage.
- Easy Prepayments and Lower EMIs
Loan against Property foreclosure might attract a prepayment/foreclosure penalty. This penalty varies from lender to lender. It also depends upon whether the loan borrower is an individual or a firm. If the loan is being taken in the name of a firm, then most lenders charge a prepayment penalty of 1–4% on loan outstanding amount. Before signing the loan agreement one should carefully check on all the exit pages.
Since LAP is a long tenure loan the EMIs are comfortably low. The longer the tenure, the lower is your EMI and the shorter the tenure higher will be your monthly payable installments.
It is economical to take a loan against property but only under certain circumstances. For instance, if you are planning to take the said credit facility as a substitute of equivalent unsecured credit scheme; a loan against property is definitely economical. It goes without saying that on a comparative basis, a secured credit scheme is available at a lower interest rate for Loan against Property. On the contrary, an unsecured credit scheme is available at a higher interest rate.
A loan against property comes with end-usage flexibility. This allows the borrower to utilize as per their needs without prior mentioning the purpose to the lender. The same facility is available in the personal loan scheme but the same is available at a higher cost. Plus, the amount of money, the borrowing limit is higher in the mortgage loan.
