A Guide on the Most Critical Aspects of a Loan against Property

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Due to financial turmoil, people often seek personal loans from banks and others. The bank is a more trustworthy institution compared to other lenders. The best thing is that bank loans are available with a low interest rate, and such lenders do not endorse hidden charges. On the other hand, loans from different lenders may come with a high interest rate, hidden charges, high transaction fees, and many more. The only problem is that the bank checks your credit profile minutely, and the loan application rejection chance is high. If your loan application is declined, you can take a loan against the property. In the following section, you can learn more about loan against property interest rates and other details.

Things to Know about Loan against Property

A loan against property is an unsecured loan, which considers property the collateral. If you cannot repay the loan, the lender will seize your property and sell it to recover the loan amount. Since it is a loan against collateral, the borrower’s credit history does not bear high importance. But, lenders will still check your credit history, income status, outstanding debts, and other factors before approving such a loan application.

So, what are the things that you must learn about loans against property? In the next section, you’ll find a list of the most important things you need to know before applying for a loan against property (LAP).

1. Know the Property Value

The loan you get against a property depends on the property value. An old property that requires high-end repair and maintenance will not fetch a good loan amount. On the other hand, a new property will bring a good loan amount.

So, many things depend on the property value and its condition. The lender has its mechanism to inspect and determine the property value. An application can get around 70-80% of the property value with the loan against the property. However, the credit limit can reduce depending on other factors.

2. Tax Benefits

When people apply for a loan, they look for certain tax benefits. For example, borrowers can obtain tax benefits on home or education loans. However, a loan against collaterals does not fetch any such tax benefits. Since LAP is a loan with collateral, you cannot expect a tax benefit on loan.

However, the policies of government are a dynamic subject. You may not have tax benefits on LAP today, but you may have a tax benefit tomorrow. So, such things depend on the government’s policies, and you can consult a bank for further details.

3. Fixed and Floating Interest Rates

When you apply for a loan against property, you will find two types of interest rates. Most banks offer options for floating and fixed interest rates. Both interest rates have their pros and cons. For example, the fixed rate will remain fixed, overlooking the market condition. Therefore, your monthly loan EMI will not change.

The floating interest rate may change depending on the government and RBI’s policies. A floating rate is beneficial when the interest rate is low. However, the interest rate can increase depending on the market scenario. In such cases, you will pay a higher EMI.

4. Different Loan Purposes

In a secured loan, you should have a purpose and apply for the loan according to that purpose. For example, you may apply for a higher study loan to study a specialty course. In such cases, you cannot utilize the money for purposes. Similarly, you can only buy a home using the home loan facility from the banks.

The loan against property is an unsecured loan, and things are different in this case. You can use the loan amount for other purposes. The lender may want to specify the purpose of applying for the loan. But, it does not mean you should use the entire amount for a particular purpose. For example, you can use a business loan against property for business infrastructure development and other purposes.

Conclusion

So, these are some fundamental things you must know about a LAP. Many lenders, including banks, offer such a loan to the borrowers, though you should find a trusted lender. Banks offer loans against property at a low-interest rate. Moreover, the banks do not have any hidden charges, which other lenders may impose on the borrowers.

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