Loans might have become a great way of gathering extra funds today, but getting a loan is far from an easy task. Since most of the loans are secured in nature, you need collateral for getting them. Fortunately almost all of us have a high-value asset with us: our homes. This is where loan against property comes into the picture.
Difference between Loan Against Property and Home Loan
Loan against property is a secured loan that uses your property as collateral in exchange of the funds. Though often confused with it, Loan Against Property is very different from housing loans.
Home or housing loan is a loan for land purchase or buying a house/office. Also known as property loan, home loans are very common in urban centers where the price of property is high and cannot be afforded by most people. Home loan eligibility is not much, except the property you are buying as collateral. Housing loan interest rate is generally high.
Advantages of Loan against property
- Most lenders only provide 40-60% of the assessed market price of the property in question. However, given the high value of fixed properties, even this amount is pretty high compared to other loans like personal loans. You can use a loan calculator to get the exact amount.
- Loan against property interest rate is generally lower than other loans. LAP usually charge 12-16% interest, compared to the 16-20% interest of personal loans.
- Another appealing factor about LAP is the fact that it includes almost every type of property. For instance, if you were looking for loan against property in Delhi, you can use any residential, commercial, industrial property, or even a vacant plot.
- The loan repayment tenure in case of LAP is quite high. Most lenders give 15 years to repay the loan, but in some cases it could be extended to 25 years. Thus, you get ample of time to repay the loan amount.
Why Loan Against Property?
- Debt consolidation is one of the most popular reasons for taking a LAP. Debt consolidation refers to replacing multiple unsecured debts with a single one. Since LAP gives high loan amounts with long repayment tenure and low interest rates, it makes sense to use it for replacing multiple loans you might have taken.
- LAP also works as an alternative to lease rental discounting. In case of LRD, the loan taken by the property owner is repaid by the tenants directly to the bank. However, it results in being over dependent upon the tenants for loan repayments. LAP, on the other hand, frees you from this stress.
- Most business loans ask for the purpose before granting the loans, and sometimes put restrictions on the use of funds. For instance, equipment financing only allows you to use the funds on buying equipment and nothing else. LAP, however, gives you the freedom to use the money in whichever way you see fit.
Loan against property is a less known but very effective way to gather funds through one of the most valuable assets you possess. It is definitely worth a try.