Should you take a loan against property?

Life is uncertain and can throw in a spanner at any time. At such times, you may be standing face to face with a financial crunch. At such times, all you need is a hassle-free loan. While most people take personal loans to overcome financial emergencies, there is another credit option for you if you are a property owner. It is called a loan against property. There are three compelling reasons that make a loan against property is a viable option for a property owner.

What works in favour of a LAP

Firstly, it is a cheaper option as the interest rates on loan against property is available at a cheaper rate of interest (9.5-14%) as compared to personal loans, where interest rate can range from 15-25%. Secondly, most banks and NBFCs offer a loan against property for a longer tenure (10-15 years on a case to case basis) as against a personal loan that is available for a maximum of 5 years. This means, if you are a property owner you can enjoy the benefits of a lower EMI over a prolonged period.

Thirdly, and perhaps most importantly, a loan against property is considered a secured loan as you are offering your property as a collateral. Opting for a secured loan has a better impact on your credit profile and is good for building a strong credit score in the long run. It is important to maintain a good credit score as it is a measure of your financial health and is referred to by lenders while assessing your eligibility for credit.

What may not work for you in a LAP

However, there are some glaring disadvantages of opting for a loan against property as well. Firstly, you are at the mercy of a lending institution which reserves the right to evaluate your property and arrive at an amount that may be lesser than what you require. Also, anecdotal evidence suggests that after the valuation of your property, financers often arrive at a valuation that is much lesser than its market rate.

Secondly, lending institutions tend to be exacting with regards to eligibility on loan against property. Apart from the fact that you must submit a host of KYC documents such as property title, residence proof and identity proof, the amount loaned to you will depend on several factors such as your age, your income, your job profile and your credit score. Finally, if you meet all the eligibility criteria as set by the lender your loan amount will be anything between 40-70% of the market value of your property.

And even after you do manage to get loan against your property, you are bound to debt for a longer tenure as compared to personal loans that may be a slightly higher strain on your pocket, but get over quicker. Finally, do bear in mind that if you are unable to repay your loan for some reason, you stand to lose the right to your property.

Tread with caution before you choose

Thus, as is obvious, there are as many disadvantages of taking a loan against property as there are advantages. Mostly, people do not opt for this loan product because of the fear of losing control over property. However, if you have maintained a good credit profile thus far and your finances have taken a toll only recently, you can opt for a loan against property without fear.

In conclusion, it may be said that you should exercise caution before opting for a loan against property. Opt for it only if you are confident of the fact that you will be able to get over your financial crunch soon and be able to make regular repayments on the loan you take. For further queries on loan against property feel free to get in touch with us at RuLoans.

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