A property is a lucrative investment. It not only shelters you but also comes to your aid when you need funds. In a financial crisis, you can sell off the property and fulfil your needs. However, it is not always possible to liquidate your property. You could have an emotional attachment with an ancestral property, or it could be commercially valuable for you. In such cases, you can pledge your property and borrow money. It is called a loan against property. Find out more about it below.
What Is a Loan Against Property (LAP)?
A loan against property is an amount of money that you can borrow from the bank or financial institution by pledging your property as collateral. You can avail a loan against property by pledging your industrial, residential or commercial property. Depending on the property value and your eligibility, lenders can offer 50-80% of the property value as a loan.
Benefits of Loan Against Property
- Higher loan amount
With a loan against property, you can get a sanction of a higher amount. The loan amount usually depends on factors like your eligibility, credit score, property value, property location, income etc. It also depends on the type and market value of the property. If the lender is satisfied with the property value, they can offer you a high loan amount to help you fund your big-ticket expenses.
- No end use
You can use a loan against property for any purpose as per your need. You have the flexibility to use it for a medical emergency, education, wedding expenses, house renovation, travelling, legal expenses, etc. You need not inform the lender of the reason for availing this loan.
- Tax benefits
You can avail a tax deduction on a loan against property in certain cases. If you use it to fund your new residential property, you can claim a tax deduction on the interest repayment of up to Rs 2 lakh under section 24(b) of the Income Tax Act, 1961. Similarly, if you use it for business purposes, you can claim tax benefits for interest charges, processing fees and even documentation costs incurred for business under section 37(1). No tax benefits are available if you use LAP for personal purposes.
- Lower interest rate
Because it is a secured loan, the lender’s risk is reduced as they can use the property to recover their losses. Therefore, the interest rates are comparatively lower for LAP than other types of loans. This reduces the EMI and the overall cost of borrowing, leaving you with more money for other financial needs.
- Longer tenure
Compared to other loans like personal loans and gold loans, loans against property have a longer tenure. You can avail a LAP for up to 15 to 20 years. With a longer tenure, you get ample time to repay the loan and avoid default.
If you do not wish to sell your property, you can use it as collateral to borrow funds with a mortgage loan. However, a substantial amount of money is involved in such loans. Therefore, you must read the fine prints carefully and be aware of all the aspects before signing below the dotted lines.