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Tips and Advice For Loan Against Property

Introduction

A loan against property (LAP) is a facility provided by financial institutions, wherein you can expeditiously receive a secured loan by mortgaging any property you own. It could be a piece of land, residential or commercial property. It is, thus, a secured type of loan and helps you to receive high credit on lower interest rates.

You can use the loan against your property for varied purposes. It can be used towards education, business, personal or medical expenses. Under this facility, your property is received as collateral, making it a secured type of loan. Thus, the interest on a loan against property is lower than an unsecured type of loan. Lending institutions provide lap loans based on your income, age and, creditworthiness. Depending on the value of your property, you will receive a disbursal of the loan amount. 

However, there are certain things to note before you apply for a loan against a property. They are the do’s and don’s you need to follow to avoid making common mistakes.

Things to remember before you apply for Loan Against Property: Tips and Advice to follow

A loan against property offers you benefits such as long tenures and low interest rates. But, there are certain factors you must check before applying for this facility. They are:

  • Evaluate your risks: Under this facility, you mortgage your property to receive a high loan. This puts the asset under vulnerability, thereby putting you at a greater risk. It is necessary to evaluate your risks and accordingly determine leveraging your property against the loan amount. Thus, if you have enough finances to take care of yourself in the future—there will be no greater risk or threat of losing your asset in the event of loan default. You must, therefore, avoid over-leveraging.
  • Compare interest rates of various lenders: This is the most common mistake made by borrowers. They usually forget to compare interest rates. Interest rates differ for every lending institution. You must, therefore, as a part of the due diligence check and compare interest rates of various lenders. It will enable you to opt for the best suitable facility out there. 
  • Go for a short tenure: Under this facility, you can opt for a long tenure. Most lenders offer a long repayment tenure that goes up to 15-20 years. Long tenure means lesser EMI, which results in a higher rate of interest. It is, therefore, advised that you opt for a short tenure to pay a lower rate of interest. 
  • Try not to miss out on paying EMIs: You must avoid delays on EMIs as it will result in late payment fees. Additional late payment fees will have an impact on your finances and affect your creditworthiness. It will also make it difficult for you to borrow loans in the future. Therefore, try not to miss out on paying your EMIs.
  • Don’t forget to claim tax benefits: Claiming tax benefits will help you to sort your finances. It will make the process of repayment easier for you in the form of tax reliefs and exemptions granted under the Income Tax Act. While there are no direct tax benefits under LAP, you can claim certain tax benefits depending on its end-use. For example, if you have received the loan to purchase new property, you can claim deductions under Section 24(B) up to Rs. 2 lakhs.

Additional Read: Tax Benefits On Personal Loans

Conclusion

Loan against Property is easy to avail. Many times, borrowers get carried away by the low interest rates and the high loan amount offered. It is vital that you read the loan document carefully and also the repayment terms. Keep in mind a few factors such as, the risk factors associated with it and the services offered by your lender. This will help in selecting the best LAP option for you.

Disclaimer

ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Mumbai - 400025, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730) and BSE Ltd (Member Code :103) and having SEBI registration no. INZ000183631. Investment in securities market are subject to market risks, read all the related documents carefully before investing. We are distributors of loan products, Insurance and Mutual funds, Corporate Fixed Deposits, NCDs, PMS and AIF products. ICICI Securities Ltd. acts as a referral agent to various banks for various loan facilities and is subject to fulfilment of eligibility criteria, terms and conditions etc. All disputes with respect to the distribution / referral activity would not have access to Exchange investor redressal or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.

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