A loan against property is a convenient financing option that allows borrowers to access high-value funds at affordable repayment options. Individuals can easily avail of this loan by pledging a commercial or residential property as security. The borrower will essentially remain the owner of the property throughout the loan tenor.
These are usually secured loans that come with interest rates, comparatively lower than other financing options. This loan segment has gained much popularity due to its flexibility of usage, lower interest rates, and convenient repayment features.
Let’s understand why LAPs are increasingly becoming a sought-after borrowing option among individuals.
What is driving the demand for a loan against property?
A loan against property comes with several useful features that work in favour of the borrowers. Here are some of the factors that have successfully led to an increased demand for a LAP:
Adequate funds to cover major expenses
A loan against property offers substantial funds to borrowers. This fund is usually sufficient to cover high-value financial requirements, such as emergency medical purposes, business expansion, home renovation, higher education, and much more.
Lower interest rates
One of the most significant factors behind the popularity of a loan against property is the low interest rates. Interest rates are a vital component for any credit option since it affects the monthly EMI outflow. The loan against property interest rate is much lower than other borrowing options as this is a secured loan. The lender will require the borrower to pledge their property as collateral against the fund provided. This reduces the lenders’ risk significantly.
No restriction on the purpose of use
A loan against property comes with zero end-use restriction. In other words, an individual is free to use the availed fund as per their requirement. One can avail a loan against property to meet medical expenses, fund foreign trips, weddings, home renovation, debt consolidation, and more.
Easy and convenient repayment options
In addition to low LAP interest rates, this financial instrument comes with an extended repayment tenor of up to 20 years. Various financing institutions offer a Flexi-loan facility through which one can withdraw multiple times from a pre-sanctioned loan amount. The interest rate will be levied only on the withdrawn amount. This makes the EMI amount quite affordable.
Moreover, leading financers also provide various pre-approved offers to further streamline loan applications. Such pre-approved offers are available on several financial products, such as home loans, business loans, credit cards and more. To check your pre-approved offer, make sure to provide some of your basic details like your name and contact number.
Balance transfer facility for a smooth repayment
One can enjoy easy loan repayment at a lower interest rate with the balance transfer facility. Moreover, a borrower can also avail of a top-up loan. These features make LAP repayment a highly convenient and smooth experience.
Scope for tax benefits
You can also avail of income tax benefits for loans against property. However, tax exemption will depend on how you use the fund. For instance, you can avail of a tax exemption of up to Rs.30,000 for home renovation and up to Rs.2 lakh for house purchases.
Loans against property can be a great financing tool if you have a property that you can pledge as security. The LTV will, however, depend on the current market value of the property.
Interestingly, the Indian loan against property segment is expected to grow at a CAGR of 14% in the upcoming years. It is set to reach $857.87 billion in value by FY2026.
However, before you apply for a loan against property, make sure to compare the mortgage loan interest rates across lenders. You can use an online LAP EMI calculator to estimate the EMI outflow. Also, remember to check loan against property eligibility criteria to find suitable financing options as per your requirements.
Lenient eligibility criteria
The eligibility parameters of this financial product also work to its advantage, favouring senior citizens.
- Applicants must be above 60, but for a joint loan application, they can be above 55 to qualify.
- The property must not carry default tax payments and legal complications
- Borrowers must be permanent residents of that property for at least 20 years
Along with property papers, one needs to submit only KYC details to complete the application process.