Pros and cons of taking a loan against property in India

A loan against property, as the title indicates, is mortgaging your home, apartment, or land to obtain a home loan. It is simple to obtain a home loan against property, and you do not need to provide any specific reasons for it. LAP is accessible in almost all situations, including marriage, children’s education, investments, and medical care. You receive multiple repayment choices and a low-interest rate with LAP.

What is a loan against property?

When money is required quickly, the typical way to proceed is to apply for a personal loan from a financial institution such as a bank. Although receiving a personal loan is simple, it is an unsecured loan with a significantly higher interest rate than secured loans, resulting in you paying a higher EMI.

How many types of LAP?

LAP is divided into two types: 

  • LAP Simple 
  • LAP Short Sweet

Advantages of Loan against Property:-

Interest rates low:-

Interest rates on a loan against a property start at 8.50 % and can rise depending on the property’s value, the loan amount, and the consumer’s ability to pay back the loan.

No requirement to show proof of income:-

Because a loan against property is a secured loan, most financial institutions do not need income information. This is a huge advantage for unemployed people who are in serious financial trouble.

Almost no documentation:-

For a loan against property, only the most basic documents are required. Only the documentation for the property must be submitted to the financial institution, apart from identification and proof of residency.

No requirement for a credit score:-

As it is a secured loan, most lenders do not verify one’s credit score or credit history. A loan against property is therefore very beneficial if one has a low credit score or is new to credit.

Property security:-

The property is temporarily kept in the lender’s name and will be returned to the customer just after the loan is fully repaid. Without any delays, all ownership names are transferred to the customer.

 

Disadvantages of Loan against Property:-

1 – Takes a long time for loan sanction:-

When you apply for a LAP, you will have to wait a long time to get approved. A background check on the person who is applying for a loan is necessary for banks. This is done to ensure that a person applying for a loan is genuine. This requires some time commitment, which can be irritating at times.

2 – The Price of property:-

One disadvantage of assessing property values from multiple banks is that different banks provide various property prices. The price does not follow any defined pattern. This may result in differences in the amount of the loan. The usual expectation should be 70% of the property’s overall value.

3 – Taxes:-

The LAP does not exempt taxes. This can also be a problem in deciding whether or not to use the Loan Against Property option.

4 – Price instability:-

Since the economy is always changing, the cost of a property might rise or fall at any time. This might raise concerns for the consumer since he may be offered a loan that is less than what he requires.

5 – Property can be sold:-

The final and biggest risk is, If a client misses payments and is unable to repay the loan in full, the borrower has the authority to sell the property to cover the debt. It might result in a huge loss for the customer.

The loan against property option is ideal for persons who have assets that aren’t being used.

Considering all of the advantages and disadvantages, you may or may not decide to choose a LAP, depending on the urgency of your need. You should take the guidance of expert financial consultants who can guide you in the proper direction. With them in charge, they will be responsible for conducting thorough research before applying for a loan

 

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