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03-May-2023 | Loan Against Property
Loan against Property: Benefits of LAP
Whenever people need a large sum of money, the foremost thing that they thought of is a loan, as it can solve their financial emergencies. Out of various loan products, there is one product that comes with plenty of benefits i.e., a loan against property.
So let’s first understand what is loan against property –
Loan Against Property
A loan against property (LAP) is a secured loan where the lenders i.e. banks or NBFCs lend money or funds to the borrowers against their residential properties. As the name suggests, it is a collateral-based loan where in exchange for collateral, borrowers get money from financial institutions. The property is pledged till the loan repayment tenure lasts. In this property loan, the lenders keep the title of the property and all the original documents with themselves until the loan amount is fully repaid by the borrowers.
Benefits of Loan Against Property
A loan against property offers plenty of benefits to the borrowers, as it is a secured loan. Following is the list of various advantages that one can get if they are planning to apply for a property loan:
· Large Sanction Amount
The first and foremost benefit of LAP is that the borrower can get a large sanction amount considering the market value of the property. However, this amount varies based on factors such as whether the property is rented, vacant, or occupied.
· Comparative Low-Interest Rate
Since the loan against property is a secured loan, the risk of the lender is comparatively low. Thus, the lenders charge a comparatively low-interest rate. Subsequently, it helps to lower the EMI and ease the financial burden.
· Flexible Repayment Tenure
When any borrower avails a loan against property then they are likely to have a convenient and flexible repayment tenure for paying EMIs with ease and no delays. In comparison with unsecured loans where repayment tenure lasts up to 5 to 7 years, the repayment window can go up to 15 years in the case of a loan against property. Such a long tenure helps in decreasing the amount of monthly EMI. To check the amount of monthly EMI, the borrowers can use the Aavas property loan EMI calculator for accurate results.
· Quick Approvals
The most significant benefit of a loan against property is that the complete process of the verification of the applications is comparatively quick and easy. Because of the absence of collaterals, lenders need to be careful about security aspects. Thus, to check the repayment capacity of the borrower, the screening procedure takes time for a thorough examination of all the aspects. Even it has become too easy for people to online apply for a loan against property, as it is a timesaving and convenient option. Thus, the borrowers usually get quick approval on loan applications.
· Minimum Documentation
For processing an application for a loan against property, there is very minimum and basic documentation needed, such as:
1. Identity Proof of the borrower
2. Title / Property Documents
3. Address Proof
4. Employment or Income Proof
5. Bank Statement
· Tax Benefits
Another significant advantage of availing a loan against property is the tax benefit. If the loan amount is used for business purposes, then as per Section 37(1) of the Income Tax Act, the borrower can avail tax benefits on the interest paid.
In this case, the borrower needs to submit proof that shows these funds have been spent for business purposes only. However, if the loan amount is used for any personal expenses such as weddings, vacations, education, travel, or any other, then borrowers cannot avail any tax benefit from that loan against property.
· Can continue to use the Property
Even if the borrower has mortgaged the property to get a loan, he or she can continue to use it. The right to ownership is still there with the borrower only. They can self-occupied or rent out the property as per their need and requirements.
As we have discussed the multiple benefits of LAP, there are indeed enormous pros of taking a loan against property for fulfilling financial needs. But, at the same time, it is also necessary to check which bank or NBFC could be the right choice for availing a loan. It is an important decision to keep the property papers with someone for such a long time. Therefore, it is essential to check the credibility and reliability of the financial institution. Aavas Financiers Ltd. being conferred as the BEST NBFC for the year 2020-21 in FE India's Best Banks Awards shows how customers and regulatory bodies trust the company for its services.