A loan against property allows all property owners the opportunity to avail of lump sum funds by leveraging the property without losing their ownership. In fact, unlike other loans, the interest on loans against property is comparatively low and it comes without any end-use restriction.
However, to get substantial benefits out of a loan against property, the borrowers should be aware of certain factors.
6 factors to consider while applying for a loan against property
Before availing of a loan against property, ensure to consider these six aspects:
- Loan repayment tenor
The borrowers should choose their loan repayment tenor wisely. If someone wants to pay lower EMIs, they can choose to opt for a longer tenor. But if an applicant intends to reduce the overall interest amount, they should go for a shorter tenor repayment.
The applicants can use a loan against property EMI calculator to calculate their monthly payable EMI as per their loan tenor and decide whether to opt for a shorter or longer tenor.
- Interest rate
The rate of interest on loan against property is one of the most significant factors to consider while applying for LAP. Though its interest rates are quite affordable as compared to other loan products, it varies from lender to lender. Lenders consider different factors while offering the interest rates for LAP, like repayment tenor, loan amount required, the borrower’s repaying capacity, condition of the property to be leveraged, etc.
- Tax benefit
Only if the sanctioned loan amount is used for purchasing or financing a house, then as per Section 24(B) of the Income Tax Act, up to Rs.2 lakh can be claimed as a tax deduction on the interest on the loan against property.
- Prepayment charges
An applicant can also prepay the loan to reduce their loan against property interest outflow, taking into consideration any prepayment charges. Most lenders charge a small percentage of the principal amount for prepaying or foreclosing a loan. But this amount is only charged if it is taken on fixed interest rates.
On the other hand, if the loan is taken on floating interest rates, there will be zero prepayment or foreclosing charges.
- Loan amount to be disbursed
The current market value of the pledged property is one of the important parameters when considering the loan amount to be disbursed in LAP. Most lenders usually finance 50-70% of the market value of the pledged property.
The disbursed loan amount also depends upon other parameters as well, like the age and location of the property, the property’s infrastructure, etc.
- Processing time
While applying for a loan against property, lenders usually evaluate property-related documents, and this might take time. However, once all the necessary verifications are done, the lender will promptly approve the loan and deposit the amount.
The borrowers should keep a check on all these prominent factors to get the best deal for a loan against property.
Many financial lenders and NBFCs also provide their customers with pre-approved offers. These offers help to simplify the loan application process. These offers are usually available on various financial products like home loans and others. Borrowers can check their pre-approved offers by entering their names and contact numbers on the lender’s website.
Thus, before finalizing the lender, it’s prudent to consider these six factors and choose the one that seems more affordable. One can also check the loan against property eligibility criteria to verify whether they can avail of a loan from a particular lender.