These days, lending institutions offer multiple options of loans to their customers. One of the attractive options is a loan against property (LAP). A loan against residential or commercial property is a secured loan where a borrower pledges his property as collateral. Some people prefer a loan against the property as it comes with no restrictions in terms of usage. Hence, a borrower can use the funds for any requirement, such as getting his children married, funding higher education, expanding his business, paying his debts, etc.
One of the key requirements of this loan is that your property should be legal and should have all relevant approvals from the government authorities. An approved property or property situated on illegal land cannot be mortgaged to banks. Secondly, your income and credit score are highly important in deciding your loan amount and eligibility. You can apply for a loan against property online or visit a bank nearby. You need to fill up an application form and provide documents related to your income, property, personal verification etc.
Here are some of the key things you need to remember for a loan against property.
Secured loans are available at a lower rate of interest when compared to unsecured loans. Also, if your credit score is good, your chances of getting a loan at a low-interest rate are very high.
If your property documents are in place, the entire loan process and approval are easy for a loan against the property since your property is being used as collateral. The process and approvals are hassle-free and take less time.
You can get flexible loan repayment tenure. The loan repayment tenure can go up to 20 years. The property owner continues to enjoy the property without an issue as long as he pays his EMIs to banks on time and the property is retained with the borrower. The ownership does not change when you take a loan against the property. You can even sell the property if you cannot repay your loan, according to BankBazaar.com.
You can pre-close your loan against property whenever that is possible for you. However, it would be best to discuss with your lender whether they levy any pre-closure charges. You might have to pay a nominal charge, but it is good to know it before signing the loan agreement.
It allows you to give your property on rent, so if you are not occupying that property, you can always rent out and earn rental income on the property.
Moreover, if you are a salaried person, you can also claim income tax benefits under Section 24 of the Income Tax Act. But the fund should be used for a new residential house. A tax deduction of up to Rs 2 lakh is allowed. The tax deduction is allowed on the interest payments.
Section 37 allows you to claim benefits if the loan amount is used for business. You can claim tax benefits on your business expenditure, such as the processing fees, interest, documentation fees etc. Please remember that if the loan amount is used for marriage, education, medical bills or education, you won’t be able to claim tax benefits.
The table below will help you compare interest rates and EMIs for the loan amount of Rs 15 lakh for a 10-year tenure. You can compare the interest rates of more than 20 banks and decide according to what suits your requirements.
Interest Rates & EMI on Loan Against Property
Compiled by BankBazaar.com
Note: Interest rate on Loan Against Residential Property (LAP) for all listed (BSE) Public & Pvt Banks considered for data compilation (excluding small finance banks); Banks for which data is not available on their website, are not considered. Data collected from respective bank’s website as on 19 April 2022. Banks are listed in ascending order on the basis of interest rate i.e. bank offering lowest interest rate on LAP is placed at top and highest at the bottom. Lowest interest rate offered by the banks on LAP is shown in the table (irrespective of loan amount and tenure). EMI is calculated on the basis of Interest rate mentioned in the table for Rs 15 Lac Loan with a tenure of 10 years (processing and other charges are assumed to be zero for EMI calculation); Interest mentioned in the table is indicative and it may vary depending on bank’s T&C. * Rack Interest Rate