What are the Benefits of Loan Against Property in India?

Loan against Property or LAP as the name suggests, is a loan that is sanctioned against property as collateral. The property can be either residential or commercial. It is a form of secured loan and can be availed by both individual and businesses for various purposes like education, marriage, business expansion, etc. The loan amount here depends on the value of the property. Although it differs from lender to lender, the borrower can avail loan up to 70% of the value of the property. Loan against property in India has many benefits.

Let us take a look at some of them:

1. Lower Rate of Interest – LAP is a secured loan and, therefore, the rate of interest is comparatively lower as compared to personal loans. You can avail loan against property in India against any financial institution and the terms vary from lender to lender, but depending on the property, you can negotiate with your lender on interest rates.

2. No Penalty in case of Prepayment – Another major advantage of loan against property is zero penalties in case of prepayment. Generally, lenders levy prepayment charges in case of prepayment because the lender loses out on interest payment. However, in case of LAP, no prepayment charges are applicable and the borrower can make payments and finish off the loan as per his convenience.

3. Easy to avail – These are secured loans and, therefore, they are very easy to get. Usually, in the case of unsecured loans, lenders perform stringent checks like credit score, etc. However, that is not the case in case of loan against property. Almost all financial intuitions are more than willing to offer secured loans provided you have the necessary documents.

4. Longer Tenure - While personal loans can be availed for up to 7 years, the tenure of loan against property in India is much longer up to 15 years. Of course, it differs from lender to lender as every lender will have its own terms.

5. Lower EMI – It is common knowledge that loan tenure and EMI have an inverse relationship. Longer the loan tenure, lower is the EMI and vice versa. Therefore, LAP has longer loan tenures and, therefore, are suitable for people who cannot afford to pay higher EMIs. However, people should generally avoid longer loan tenures as far as possible as it means higher interest burden.

6. Tax Benefits – Under section 37 (1) of the Income Tax Act, tax exemption on loan against property can be availed if the loan is utilised for business purposes. Benefits can be obtained against interest paid, associated fees, and charges incurred. Under section 24, you can get a loan against property tax benefits if funds are used for financing a new home. The maximum benefit that one can avail under this section is Rs 2 Lakhs.

Therefore, loan against property in India is an attractive financing option if you have a property that you can mortgage. However, you need to have a repayment plan in place as a loan default, in this case, can have very serious implications. You don’t just lose out on property but your credit history can also be damaged, making it nearly impossible for you to secure a loan in the future.

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