Is it Smart to Invest Money from a Loan Against Property?

Owning an immovable asset such as a property can be quite lucrative. You can take a loan against it to finance the purchase of business assets, consolidate your debt, pay for your child's education or wedding expenses, or increase income by buying a second property and leasing it. Using a loan against property is ideal in all such situations. However, you may also be tempted to use the funds to invest in marketable securities or other options as Loan Against Property Interest Rates are quite lower. Typically, this isn't an ideal use of the loan. It is essential that you understand the various outcomes to understand when you use a LAP for investment. Here is all you need to know. When to Consider a Loan Against Property for Investment? The only time to consider a loan against the property for investment is when you are able to effectively manage all possible outcomes. For an instance, if you already have backup funds to repay the loan even if the investment falls through. Another instance where you can think of using a loan to invest is when the investment is completely risk-free. So, if you are sure that you are investing in a scheme that offers guaranteed returns, you can consider taking a loan against the property for investment. It is also important to ensure that your investment returns are worth the risk you are taking while pledging your property as collateral. Why You Should Avoid a Loan Against Property for Investment? Despite the easy Loan Against Property Eligibility Criteria, the primary reason to avoid using the amount you get via this loan on investing is the pledged collateral involved. Remember that real estate is an asset that is ever-increasing in value. Placing such an investment at risk just for the possibility of gaining more funds may not be a prudent move. Also, while you may know people that have gained from such a decision, it is important to remember the market fluctuates. Since demand and supply can be pretty volatile, there is no guarantee of fixed returns. Losing money on your investment can lead to a debt trap or cause you to lose out on your mortgaged property. What to do in case of Surplus Funds and an Existing Loan Against Property? In an instance where you have additional funds and are considering the same as back-up for repayment of a LAP if your investment fails, consider other options. If you have pending debts for an existing loan against property, repay the same. This way you can earn by saving on the interest of this debt. You can also choose to invest these savings in an FD or SIP, which are safer options. While the returns may be lower compared to what you may gain from investing with the funds of this loan, you won’t be taking too much of a risk. Additionally, if your investment doesn’t work out, you will have lost a smaller amount than you would have, if you had taken a loan against property for investment. In an instance where you are trying to invest in your retirement, choose other options with guaranteed returns such as a PF, PPF or NPS. Avoid the use of any kind of loan for the sake of market investments as these can be similar to gambling with your money. When in doubt, always go with the saying—a bird in hand is worth two in a bush.