Top 5 Benefits of Availing Loan Against Property for Your Financial Needs

You can plan your life all you want, but sometimes things get out of control. People lose jobs, find themselves compelled to take care of a medical emergency and part with all their savings in just a few days, etc. Similarly, sometimes, our responsibilities and duties compel us to step up and take financial decisions that test us.

For example, people often find themselves availing of a loan to take care of responsibilities, such as funding a child's education or wedding. When it comes to wedding or medical expenses, most people avail of a personal loan. 

However, personal loans are unsecured in nature and therefore, lenders charge a high rate of interest on these loans. In the end, borrowers end up paying a lot of money as interest in the case of these loans. If you are looking to raise a substantial amount of money at affordable interest rates, consider availing of a loan against property. 

Homeowners who own a property can avail of a loan against property instead of a personal loan to take care of various expenses. A loan against property is a type of secured loan under which a borrower avails of a loan against a residential or commercial property or owned land. Since these loans are backed by collateral, lenders see these loans as low-risk loan options and therefore, do not charge a very high rate of interest on them. 

For instance, currently, loan against property interest rates vary between 7% and 11%, which is much lower compared to personal loan interest rates that currently vary between 14% and 25%. In the case of loans against property, a borrower pledges their property as security in return for loan money. The borrower returns the money in the form of EMIs over an agreed period. Through the tenor of the loan, the borrower retains ownership of the property and can use the property as they like. 

The lender, on the other hand, is legally allowed to sell the property for loan recovery in case the borrower defaults on loan repayment for an extended period of time. However, the lender cannot sell the property without first intimating the borrower and giving them ample time to collect the money needed to repay their loan. 

Now that the readers of this article understand the basics of loan against property, let us look at its advantages and why should borrowers opt for these loans.

Benefits of a Loan Against Property 

1. Low Interest Rates 

If you are planning your child's wedding or are raising money to put them through college, you will need a substantial loan amount. In the case of larger loan sanctions, a borrower must try their best to avail of a low interest rate on their loan against property. A low property loan interest rate helps keep EMIs affordable and also reduce the total interest outgo on the loan. Loans against property are loans secured by a collateral. Thus, these loans are almost zero-risk loans for lenders and therefore, lenders sanction these loans at low interest rates.

2. High Loan Sanctions 

In the case of personal loans, most lenders cap the limit at Rs.25 to Rs.30 Lakh. This is not the case with loans against property. Under a loan against property, lenders sanction up to 60% of a property's value as a loan, provided the borrower meets the lender's loan against property eligibility requirements. Thus, if a borrower pledges a property worth Rs.1 Crore as a loan, the lender will sanction a loan up to Rs.60 Lakh, maybe even slightly higher. 

The large loan sanction makes it possible for borrowers to take care of various duties and responsibilities. Further, borrowers can also use a single loan to take care of all big-ticket expenses ans even combine all of their debt into one, single loan.

3. Long Repayment Tenor

Borrowers avail of a loan against property mostly when they need access to a substantial amount of money and when the loan value is high, having the option of being able to avail of a long repayment tenor becomes important. In the case of loans against property, one can choose to opt for a loan tenor extending between 15 to 20 years. Such a loan repayment tenor eases the burden of loan repayment, especially when the loan amount is high.

4.Tax Benefits 

Depending on how one uses the loan money, one can claim tax benefits on loans against property as well. For instance, if you use the money availed of under a loan against property to start a new business, you can claim tax deductions under Section 37(1) of the Income Tax Act. Similarly, if you use the loan money to buy another residential property, you can claim tax deductions up to a maximum of Rs.2 Lakh on payments made towards the repayment of the interest component of a home loan. However, do keep in mind that if you use the loan money for wedding expenses or travel, you won't be able to claim any tax benefits.

 5. Zero End-Use Restrictions 

Yet another advantage of a loan against property is that the loan money comes with zero end-use restrictions. This is not the case with most other loans. For instance, one can use the money availed of under a home loan only to buy a residential property. Similarly, in the case of education loans, one can use the loan money only to fund one's own or a child's education. In the case of loans against property, there is no end-use restriction on how can one use the loan money. 

One can use the funds to buy another property and earn rental income from it, take a vacation, fund a child's wedding or college education, etc. One only needs to honour their EMI commitment and as long as they continue to do that, their lender will not concern themselves with how they are spending the loan money. 

Final Words 

In conclusion, a loan against property has several advantages over other loan types. However, since these loans involve collateral one must avail of these loans after careful planning. The use of a loan against EMI calculator is recommended. Further, borrowers must go out of their way to find a lender who is experienced, reliable and has a customer-centric approach.