Is Taking A Loan Against Your Property A Good Idea?

Got a cash emergency at hand but not enough funds in your account? Don’t break your head now; the money is already in your house! We’re referring to your property. Why let it sit idle? Get a loan against your property and address your sudden cash emergencies. Of course, if you’re a little hesitant to keep your property as collateral, you can always go for a Personal Loan.

Additional Reading: Loan Against Property vs. Personal Loan

So, what exactly is a Loan Against Property (LAP)? Just like the name implies, a Loan Against Property is a secured loan that can be can be taken against a self-occupied residence or a commercial building. The main requirement on the bank’s (lender’s) part is that there should not be any other encumbrances on the property.

Loan Against Property is one of the most secure loans available, hence the lending rate is generally very low compared to other loans. However, because of the structure of lending by banks, they tend to be slightly higher than housing loans. The eligibility criteria for getting LAP is also liberal, as the property is available as collateral. The repayment term can be from 5 to 15 years.

Should You Go For a Loan Against Your Property?

For anyone who has a house or commercial property and is looking for a loan, taking a loan against their property should be the first option, especially if you’re a business owner. For starters, as a business owner with a property at hand, you wouldn’t have to look for other costly sources and the processing is also much faster if you opt for a loan against your property. A few banks may even give an overdraft facility against the property. This will help the business as interest will need to be paid only for the amount withdrawn.

Additional Reading: 5 Ways to Raise Money for Your Business

Let’s discuss some benefits of taking a Loan against Property, shall we?

Multi-Purpose Use: Just like a Personal Loan, a loan taken against one’s property can be used for anything – one does not have to mention the reason to anyone. So, be it your child’s wedding or higher education, or even renovating your house, you can avail a LAP for just about any financial need.

Low Interest, High Tenure: Loans taken against property come with low interest rates as compared to other loans. They usually range in the 12% to 16% bracket. There are two types of interest rates to choose from – fixed-interest rate and adjustable rate. Plus, these loans offer long repayment tenure, ranging up to a maximum of 15 years. This means that you’ll have sufficient time to repay the loan.

Easy To Avail: LAPs can be availed by salaried individuals, self-employed individuals, and professionals who have a property registered in their name and which is free from any legal issues. The property can be residential or commercial, or an empty plot of land. The processing of these loans is quicker than other loans, provided you have all the necessary documents handy. And most lenders usually attach only a small processing fee of 1% of the sanctioned loan amount.

Low EMIs: Since the interest rate for these loans is low, your monthly instalments will also be low. Besides you get to choose the EMIs as per your financial standing.

Refinancing: If the value of the property has risen over a period of time, a refinancing option can be used to increase the loan amount. This feature again is very useful for businessmen, who are on an expansion spree. They can use the same property to continuously build their business.

Lastly, the property continues to be in the ownership of the borrower. In case the borrowers are not able to pay the loan, they can sell the property and then settle the loan. This may leave surplus cash for the borrowers to restart their financial life.

Additional Reading: SBP – Loan against Mortgage of Property

Advantages aside, there are a few disadvantages to taking a loan against property too. These include:

Quantum of Loan: Banks generally do not give loans beyond 60% of the value of a house property. The quantum of loan sanctioned will be low as lenders will value your property at a lesser value than the actual market price of it.

Reluctance To Sell: In our country, a property is considered as a prized possession and most of us are reluctant to pledge our properties even if we are in desperate need of funds. After all, none of us want to lose our most prized possession, right?

Accessibility: New businesses generally cannot have access to LAP. They should have been in existence for at least 3 years. Salaried persons, of course, can get it if they are employed for over 1 year itself.

Not Everyone’s Cuppa Tea: Lastly, this type of loan is not for those who cannot manage their finances properly. You’ll end up losing your property if you don’t make your monthly payments consistently.

Additional Reading: Future Capital – Loan against property

In a nutshell, taking a loan against property has its own advantages and disadvantages. It is one of the easiest and best ways to raise funds when you’re in a financial need. However, the ultimate decision is in your hands – if you think you can handle it, by all means, go for it. But if you don’t want to risk pledging your property, then you can go for an unsecured loan like a Personal Loan (we have awesome offers on Personal Loans too!)