Imagine a scenario where you require money urgently, it could be anything from pursuing higher studies, business development, or if you’re a parent, planning for a wedding.
How would you go about arranging funds? You could ask your friends, family, or relatives: the only problem is that it may lead to partial success and would be a time-consuming process.
Well, there is a solution, and you might be living in it or owning it: Your home/property!
And you can avail loan through Loan Against Property (LAP).
A loan against property (LAP) is a loan that’s disbursed or provided against a property’s mortgage. It goes without saying that if you want to take out a loan against a property, you must own one, preferably a self-occupied residential property.
Borrowers can use a loan against property for a variety of personal and business goals, such as starting a business or growing it to cover unexpected medical expenditures. Because lenders receive a guarantee for the money they give, this loan is quite easy to obtain.
It is in high demand since it allows consumers to borrow a substantial quantity (up to 70% of the property value), has payment flexibility, and has a lower interest rate than other loans. The payback period for a loan can be extended, resulting in cheaper EMIs.
Tax benefits are available on the interest portion of a loan against property, and most lenders do not charge penalties for paying off the loan early.
Advantages of LAP
– Low rates of interest
One of the major advantages that LAP has is that it is a secured borrowing option, i.e. it comes with collateral. This is why you get nominal rates of interest courtesy of the lenders.
If you have taken a LAP, your repayment efforts will become an easy breeze, reducing your interest outgo, decreasing the total cost of your loan amount.
– Simple documentation and approval process
It doesn’t get much easier to get a loan when you apply for LAP. Forget all the tedious paperwork and documentation, those are things of the past.
Banks are more willing to provide these loans to people, as it comes with security.
For availing a LAP, a borrower needs to submit his/hers KYC documents (identity proof, address, signature), bank statements, income statements, and Income Tax returns. Other documents that need to be submitted are property documents, which show it’s in the borrower’s name and are free from any pending dues/liabilities.
– Get Tax Benefits
Under Section 24 (B), the income tax benefit is available to salaried individuals under this clause. If you use the Loan Against Property money to fund your new residential house, you are eligible for tax deductions up to Rs 2 lakh. Tax deductions are available for interest payments.
If the loan amount is utilized for business purposes, you can claim benefits against interest paid, associated fees, and charges. You can claim all of it under Section 37 (1) of the IT Act.
– Flexibility in repayment
If you’re looking to pay a lower EMI for your loans, then LAP is the right choice for you. They come with variable repayment tenures.
You can extend the EMI for your LAP for 20 years if you’re a salaried professional, and 15 years if you’re self-employed.
– Continuous ownership of the property
Even after mortgaging your property, you can continue with its usage. If it’s a residential property, you can continue living in it or renting it out.
You would continue to own the property even if its a commercial one, such as an office space, mall, shop, or complex.
– No penalties for the pre-closure of loan
You have the option to pre-close your loan against the property if you wish to do the same.
If the loan that you have availed comes with a variable interest rate, you will not be required to pay any penalties for the pre-closure of the loan. However, you will be required to pay a nominal amount if your loan was at a fixed interest rate.
💡Bottom of the line:
With people still unaware and skeptical about loans, Loans Against Property (LAP) have become a lucrative option to consider. The criteria and eligibility for LAP will vary depending on the lending agency or the banking institution, but there are general criteria that don’t differ much.
As far as the property is concerned, you’re not limited to just residential properties, but also can put up commercial properties for LAP as well.