A loan against property is a popular loan solution for borrowers looking to get higher loan amounts with flexible tenure and lucrative interest rate. Instead of selling your property, you can make the most of its value by taking a LAP. For starters, you will not lose the ownership of your property, and at the same time, you can secure a lump sum amount for catering your different requirements such as for business expansion, taking care of your children’s higher education, funding your child’s marriage, buying a new property, and more. A loan against property is a secured loan that the lender provides by keeping your property as collateral. This is one of the easiest loans to get in India.
In this post, we will discuss everything you need to know about loan against property so that you can make an informed decision.
Loan amount and disbursal
First things first, the maximum loan amount you can get depends on the market value of your property. After a thorough valuation of the property, the lenders will provide a loan of up to 70%-75% of the market value of the property. There are several factors taken into consideration when the lender evaluates the property. This includes the geographical stability, infrastructure, age, and location of the property, among other aspects. Once the valuation is done, the sanctioned amount is finalised based on factors like your debt to income ratio, credit score, loan repayment capacity, and more. So, it is important to check your credibility using the loan against property eligibility calculator. The loan amount will be disbursed within one to three weeks.
Tax benefits will depend on end usage
While taking a loan against property is subject to tax benefits, it will depend on the end use of the money borrowed. According to the Income Tax Act, Section 31, the interest paid, documentation charges, processing fees, and other associated costs can be claimed as business expenses. On the other hand, if the borrowed money is used for purchasing or constructing another house property, then you are liable for interest repayment up to ₹2 lakhs under Section 24. However, it is important to establish a solid link between the money and its ultimate use in order to enjoy the tax benefits.
Lending institutions generally offer longer repayment periods for LAP, stretching up to 15 years and more. Its repayment tenure is comparatively longer than options such as personal loans. Longer tenure gives the borrower the flexibility to choose a lower EMI payout. And the best part is that you can reduce the overall interest cost by repaying the loan whenever you have sufficient funds. However, early repayments are subject to prepayment charges.
Loan against property is a secured loan. Therefore, it involves low interest rates. Still, use a loan against property EMI calculator to calculate the total sum (including interest) you will have to pay every month. Remember that if you take a longer tenure, the interest rate will increase. For shorter tenures, the interest rate is lower.
There is no restriction on end usage of funds, except for speculative or illegal purposes. But always remember that if you fail to repay the loan, the lender can put your property on auction to recover the loan amount.