Is Taking A Loan Against Your Property A Good Idea?
Have you ever been in a situation where you needed money but just did not know how to raise it? Well, you are not alone. A lot of people tend to overlook their owned properties at the time of a financial crisis. Yes, you heard it right. If you own a property, you can easily get a loan against it and sort out your fund emergencies. Such loans are known as Loan against Property.
What is Loan against Property?
As the name indicates, a loan against property or LAP is a loan that you can secure in lieu of a residential or commercial property owned by you. However, it is important that there are no other loans or impediments on the property in question. The loan amount is usually a percentage of the market value of the property which in most cases lies between 50-60%.
A lot of people tend to shy away from LAP. Believe it or not this is one of the most secure loans what with the repayment term ranging from 5 to 15 years.
So, is it a good idea to take a loan against a property? Well, let us first take a look at the pros and cons.
Benefits of Loan against Property
- Low Rate of Interest: One of the major benefits of LAP is that the interest rates are considerably low when compared to the other types of loans offered by banks. This is because you offer your property as collateral to the bank. Usually, the interest rates in these cases range from 12% to 15%.
- Easy Prepayment of Loan: When it comes to closing a loan before the completion of its term, banks tend to charge a prepayment fee. However, in case of loan against property, you can easily repay the loan without worrying about any prepayment charges. Most banks do not charge any such fee for LAP and if they do, the amount is quite low.
- Quick Securing: There is no denying the fact that securing a loan is quite a task. But not in case of LAP. Since you offer your property as collateral, you can easily secure a loan.
- Long Tenure Period: When compared to personal loans, LAP have a longer tenure, thus giving you ample time to close the loan. The tenure for these loans ranges from 5 to 15 years based on the amount secured as a loan.
- Low EMI: In case of loan against property, the EMI is inversely proportionate to the tenure. The longer the tenure, the lower is the EMI. Thus, if you opt for a long tenure loan you do not have to worry about shelling out the high amount as EMI.
Disadvantages of Loan against Property
- Loan Amount not specified: Unlike in case of the personal loans and other loans, the banks do not specify a loan amount in case of LAP. Instead they analyze the property and estimate its market value. It is based on this value that the loan amount is decided.
- Lower Value of Property: Since the lending bank is the one that estimates the value of the property, it usually specifies a lower figure. This means you would be eligible for an amount that is way lower than the exact market value of your property.
- Risk of Property Auction: Though the repayment tenure for the loan against property is quite high, some people still find it hard to close it. In such scenarios, the lender is free to auction the property to recover the amount lent to the borrower.
The Final Verdict
When analyzed closely the benefits of loan against property surely outweigh the cons. Though you may have to be satisfied with an amount lower than the market value, the risks are considerably low what with the interest rate and EMI being lower. Also, thanks to the longer tenure option, you can be assured of repaying the loan and recovering your property from the lender.
So, the next time you find yourself in need for funds, think loan against property. This is surely one of the best ways to get your hands on some quick cash without worrying about high rate of interests and other such risks.
