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10 Interesting Facts You Should Know About Loans Against Property

Unpredictable finances and changing life circumstances often call for dependable financial solutions. A Loan Against Property (LAP) can be a wise choice in such scenarios. LAP is a secured loan where you pledge your property in return for a loan. If you’re grappling with financial challenges, are reluctant to sell your assets, or are finding it difficult to secure unsecured loans, then LAP could be a potential solution. Let’s delve into 10 interesting facts about LAP that might help address your concerns and meet your financial needs when you decide to apply for Loan Against Property.

Fact 1: Versatility of Usage

Loans Against Property allow the borrower to utilize the funds as needed. While many apply for LAP primarily to meet personal expenses or business needs, its versatile nature can cater to various situations. 

• Personal needs: Include funding a wedding, a vacation, or paying off high-interest loans.
• Business needs: Entrepreneurs can use it for business expansion, inventory stocking, or managing cash flow.
• Education: LAP can be a good option to finance higher studies in India or abroad.

Fact 2: Lower Interest Rates

One primary advantage that makes people apply for Loan Against Property is the lower interest rate. Since this is a secured loan, financial institutions have the confidence of an asset supporting the loan, leading to lower interest rates than unsecured loans such as personal loans.

Fact 3: Longer Repayment Tenure

LAP provides borrowers extended repayment periods, easing the burden on their monthly budgets. Long tenures lead to smaller EMIs, enabling easier repayment. 

LAPs usually have tenures ranging from 5 to 20 years depending on various factors, including loan amount, borrower’s financial health, and financial institution’s policy.

Fact 4: High Loan Amounts

LAP enables you to obtain a substantial loan amount based on the current market value of your property. The Loan-to-Value (LTV) ratio is vital in determining the loan amount. 

Most financial institutions offer an LTV ratio between 60% to 90% based on the borrower’s eligibility for a Loan Against Property, the property’s value and the institution’s internal policies.

Fact 5: The Impact of CIBIL Score

Your CIBIL score is a significant determinant in the LAP approval process. A high CIBIL score signifies a good credit history and better repayment capacity, making financial institutions more comfortable approving your loan application. 

• Typically, a CIBIL score of 700 or above is preferred for LAP.

Fact 6: Types of Properties Accepted

The type of property you pledge for a LAP can range from residential to commercial or even industrial. It can be self-occupied, rented, or vacant.

Fact 7: No Prepayment / Foreclosure Charges (Specific Conditions Apply)

Some financial institutions don’t impose prepayment or foreclosure fees on LAP, especially for floating interest rate loans used for non-business reasons. You can pay off your loan before its tenure ends without incurring extra charges.

Fact 8: Tax Benefits (Conditional)

While it’s a common misbelief that all LAPs offer tax benefits, the truth is that tax benefits are conditional, primarily depending on the end-use of the loan amount. However, consult a tax expert for this purpose, as it varies from case to case.

Fact 9: Eligibility Beyond Salaried Individuals

It’s not just the salaried individuals who can apply for Loan Against Property. Self-employed individuals and business owners are also eligible, broadening the reach of LAP. 

Eligibility criteria for self-employed individuals usually include business stability, profit after tax, and annual turnover, among other factors.

Fact 10: Top-up Loans and Overdraft Facilities

Depending on the financial institution’s policies, existing borrowers may be able to avail of top-up loans or an overdraft facility against their LAP. You can access additional funds over and above your existing loan if needed.

BONUS Fact 11: Co-Borrowing can Improve Your Eligibility

Co-borrowing presents a viable solution for those who may not qualify to apply for LAP. It involves sharing the loan responsibility with another individual, such as a spouse or a close family member. This not only enhances loan eligibility but can also increase the loan amount you can borrow. 

Typically, a co-borrower should have a stable income and a good CIBIL score, which would improve the loan application’s strength. 

Adding a co-borrower’s income can lead to a higher loan amount due to increased repayment capacity.

Summing Up

LAP offers many benefits to borrowers, from flexibility of use and lower interest rates to longer repayment tenures and high loan amounts. However, your specific circumstances, financial profile, and the lender’s policies will determine your Loan Against Property eligibility. Hence, it’s always advisable to thoroughly evaluate your needs and consult with financial advisors to make an informed decision.