All You Need to Know about the Benefits of a Loan against Property in India

When it comes to borrowing money today, one has many options. From those, the best options are personal loans and loans against property. Both types of loans give much freedom with spending. The loan amount from both can be used in any way that the borrower chooses. But as compared with personal loans, loans against property have a few extra benefits.

What Is a Loan against Property?

A loan against property is a loan in which money is given to the loanee in exchange for security. The lender, usually a bank or NBFC, will only give the loan if the loanee puts up a property as collateral.

For the loan tenure, the lender holds the property title and original documents. The lender holds these until the debt is paid. If the borrower fails to repay the loan or misses many payments, the lender can auction off the property.

Benefits of a Loan against Property in India

As a secured loan, a loan against property has many benefits for both the loaner and the loanee:

• High Loan AmountThe best thing about a loan against property is that you can get a big loan amount. The amount of the loan depends on the collateral’s market value. For the loan tenure, lenders offer 70% to 80% of the market value as the loan amount to the borrower. This rate is bigger than the amount of other unsecured and secured loans.
• Many Uses
  The money one gets from a loan against property can be used in many ways. The lender does not put any limits on the use. One can use the loan amount for
  • Higher education or education abroad
  • Marriage expenses
  • Medical bills
  • Repayment of debt with a high interest rate
  • Investment in a business for its growth
  • Remodelling or building a house
  • Improvements to business infrastructure
• Fair Interest Rates
  A secured loan gives the lender something to fall back on if the loanee fails to repay the loan or pays late. This is why lenders charge lower interest rates on loans against property.
  The interest rates for loans secured against a property differ based on the lender. Usually, the rate begins at 8-10%. Such low rates reduce the burden of one’s EMI payments.
• Flexible Repayment Tenure
  Flexible and easy repayment terms allow hassle-free and prompt payments of EMIs. unsecured loans have a tenure of 5-7 years. On the other hand, secured loans, such as a loan against property, could be repaid over 15 years. This gives the loanee time to check their finances and set aside their EMIs.
• Varying Property Types
  One can use many types of property as collateral for a loan against property. Lenders approve loans against commercial and residential properties. Lenders with the best interests often approve warehouse and industrial properties as well. The lender checks if the property is rented, self-occupied, or unoccupied. Also, the pledged property should be legally problem-free and possess a clean title. Properties that are co-owned can also be used as collateral. Yet, the policy for the type of property differs based on the lender.
• Fast Approval
  Loans against property have a faster application and approval process than unsecured loans. Unsecured loans lack security, and lenders need some form of assurance. So, they broadly assess the repayment capacity of the loanee during the screening. Loans against property can also be secured online. Online loan applications are time-saving and smooth, and same-day loan approvals are common in this process.
• Small Foreclosure Fees
  Loans against property have low-to-no foreclosure fees. Most NBFCs and banks charge 2-4% of the outstanding principal
• plus taxes on foreclosure, whereas some lenders do not charge any fee.
  One can close their property-secured loan early for a minimal or nil fee. One must prefer lenders who mention all types of charges in their documents and avoid hidden costs.
• Tax Benefit
  A loan against property can help save money on taxes. According to the Income Tax Act of 1961, under Section 24, a salaried worker can get a tax break on the payment of interest on a loan against property.

Eligibility Criteria

The eligibility criteria for a loan against property are less strict than those for an unsecured loan. The criteria may differ based on lenders, but here are some examples:

• The loanee has to be a citizen of India.
• The loanee has to be between 21 and 25 years old.
• The loanee should be salaried or self-employed. A business can also apply for a loan against property.
• The loanee should have a certain net income per month or year. (The lower limit of income differs for employees, firms, and self-employed people.)
• The loanee must have a long and steady history of work under an employer.

Documents Required

Another benefit of a loan against property is that the application process does not require much paperwork. Unlike the documents required for a home loan, a loan against property only requires basic paperwork. A loanee must supply

• Address proof (rent agreement, electricity or any utility bills, or passport)
• Identity proof (PAN card or Aadhar card/GST registration of the firm)
• Bank statement proof (operative bank account statement and salary slip)
• Proof of income (letter of employment, tax return, profit-and-loss statement, or balance sheet)
• Title/property documents

Conclusion

A loan against property has many benefits. But one must keep some things in mind when applying for one, like checking the lender’s policy. Since one is supposed to be working long-term with the lender, they should find one they can rely on. Piramal Finance is a trusted financer for everyone. Check out their products and services and their blogs on many such topics.