Wednesday, October 27, 2021

Business

Know the Advantage of Loan Against Property Over Collateral- free Loan

PUNJAB NEWS EXPRESS | September 21, 2021 10:18 PM

Whenever we are in urgent need of finances, the first thing that comes to mind is borrowing or a loan. Well, there are numerous sources of availing funds in today's world. One can choose from a secured or unsecured loan based on their requirements.

A personal loan is an unsecured loan, while a loan against property is a secured loan. Both these loans are intelligent choices that give you a good amount of spending freedom without excessive constraints. 

However, there are a few advantages of a Loan against a property compared with a personal or collateral-free loan. 

Loan against Property is a financial instrument to keep your house/property as collateral to avail funds. 

With healthy credit scores, timely payments of dues, and a stable income source that makes you confident about never missing an EMI, you can opt for other financial options that are better than a LAP. 

Nonetheless, LAP offers high-value funds at lower interest rates. If you fail to repay this loan, the lender has the right to auction your property and repay the Loan. Keeping your house as collateral should not be a problem when you have a fixed repayment plan in place. 

Here are some benefits of choosing LAP over collateral-free loans: 

Larger Sanction: 

You can mortgage a self-occupied property, rented residential property, or even a piece of land you own. 

The lender will sanction a loan based on the market value of the property. Generally, banks lend up to 50% to 60% of the total value depending upon factors such as self-occupied or rented, private or commercial, etc.

The amount you receive can be used to finance personal and business expenditures like funding your child's education, medical emergency, dream vacation, wedding, or even business launch or expansion. 

Lower Interest Rates: 

When you take a loan with the property as collateral, the lender's risk reduces. All the losses can be recovered by making a legal claim on your property. 

Therefore, loans against property interest rates are generally lower compared to personal loans. 

Loan against property interest rates usually ranges from around 12% to 15%. But the interest rates on personal loans vary between 15% to 25%. 

Repayment of Loan over a longer tenure: 

On taking a LAP, you get an extended period to repay the loan. The tenure can go up to 15 to 20 years, depending on the lender. 

At the same time, personal loans need to be repaid within seven years. Long tenure with low-interest rates makes LAP a desirable option to choose from. 

Tax benefits: 

You can enjoy tax benefits on interest payment of LAP. 

These benefits will apply only if you use the amount sanctioned for specific purposes. You will benefit if you use the loan amount for business purposes or to purchase residential properties. 

You cannot claim these if you wish to use the amount for personal reasons such as weddings, vacations, etc. 

Thus, Loan Against Property has upsides when compared with Collateral-free loans.

 

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