When you need funds to mitigate your immediate financial need, the initial thing that clocks up is a loan. But few may find it tough to decide on the type of loan to opt for or whether loan against property option is a good choice. Whether few concerns might be justified, experts’ states that loan against property is one of the secured options that hold the lowest rate than unsecured credit options. This option allows you not just to use the locked-up value of the property but also continue being the owner of the property during the period of loan. Your loan against property eligibility set by lenders basically depends upon factors like your employment status, income, work experience, repayment capacity and other factors.
Check out some of the crucial benefits that you can gain if you apply for loan against property:
- Funds with zero restriction on the end use: Loan against property allows you to use your property to raise necessary funds without losing out on the ownership of the property to mitigate your fund shortfall. Non-presence of end usage restriction on loan against property makes it an alternative to personal loan or top up home loan.
- Lower loan against property interest rate: As loan against property is secured in nature, it usually has lower interest rates than unsecured options. Loan against property interest rate ranges anywhere from 8.20 percent to 18 percent p.a. It makes this option one of the cheapest loan options if you want to opt for a loan with lower interest rates.
- Higher loan tenure: Loan against property generally comes with a tenure of up to 15 years, which is much higher than unsecured loans. Note that a longer repayment tenure means lower EMIs.
- Higher loan amount: Higher loan amount in situations of loan against property is dependent upon the loan to value ratio also called the LTV ratio offered by the lenders. Usually, lenders provide an offer of up to 50 to 70 percent of the property value in the form of loan, which can be as high as Rs 5 crore basis the property held by you. However, loan amount in case of an unsecured loan options usually is on the lower end. Thus, chances of getting a higher loan amount in case of loan against property is higher than unsecured options.
- Credit score agnostic: While credit score plays a vital role to determine your loan approval in case of unsecured loan options like personal loan or loan against credit card, in case of loan against property, the pledged securities serve as a backup for the lenders if you fail to repay your EMI or default on the loan. This security allows lenders to stay relaxed when examining your application for loan against property.
Remember, as lenders require various loan against property documents to better understand your property’s market value, the disbursal of loan may take nearly 2-3 weeks as document verification takes time. Thus, if you require immediate funding, opt for a personal loan or loan against credit card option. However, remember that the loan amount disbursed by these loans would be lower.
Also note, as loan against property has the risk of the lender taking possession over your property if you default. Thus, setting an optimal EMI as per your repayment capacity after factoring in your monthly mandatory expenses and contribution towards investment is crucial. You can take the help of a loan against property EMI calculator to arrive at an optimal EMI.