At times, you may need money for emergency purposes. Applying for a loan against property is best-suited for such situations. Read on to know more about its benefits.
As the name suggests, loan against property or LAP, is a type of credit that you can avail from any financial institution by keeping your property as a mortgage. The lenders decide the maximum loan amount you can avail based on the current value of the property pledge. But, generally, most lenders approve a maximum of 50% of the property’s value as loan.
Since you borrow against a property, a loan against property is classified as a secured loan. In case if you fail to repay the amount with the specified loan tenure, the lender has the right to take over the property and recover the money.
One of the significant features of applying for a loan against property is that the lenders do not question the purpose of the loan; you can use the amount for any purpose you want. Mostly, people avail loan against property for following purposes:
- Paying the child’s education fee
- Paying medical bills
- Wedding expenses of the child
- Going on a dream vacation
- Business purposes
What kind of property can you mortgage?
If you are looking to apply for a loan against property, you can mortgage a self-occupied or a rented residential property. Many lenders in India even accept the piece of land you own as a mortgage. Irrespective of the type of property you pledge, to get your loan approved, the property must be free of any legal dispute and it should have a clear title.
Benefits of applying for a loan against property
One of the critical reasons why many people prefer applying for a loan against property during an emergency is that it has a lower interest rate as compared to a personal loan. You can avail LAP at an interest rate starting from 8.90%. Generally, the lenders charge a lower interest on the residential properties than commercial properties. Whereas, the personal loan interest rate ranges from 15% to 25%.
- Tax benefits
When you avail loan against property, you can enjoy tax benefit on the interest payment. However, you must know that the benefits apply only if you use the amount for specific purposes. For example, if you avail loan against property for business purposes, you are entitled to get tax benefit under Section 37(1) of the Indian Income Tax Act.
Similarly, you can claim a tax deduction on the interest paid under Section 24(B) of the IT Act, if the amount is sanctioned for buying residential property. The maximum deduction you can get is Rs. 2 lakhs.
- Easy approval process
When you need money for emergency purposes, time is of essence. And, since LAP is a secured loan, lenders process the application faster than other types of loans. Also, since lenders have minimal risk of incurring loss, many lenders offer this type of loan, and you can easily get the amount you need.
- Longer repayment tenure
Unlike the unsecured options like a personal loan or credit card loans, lenders provide LAP for a longer duration. You can avail a LAP for up to 15 years. This implies you have plenty of time to repay the amount. Not to mention, the larger the loan duration, the lower is the EMI, which makes repayment affordable.
Now that you are aware of the various benefits of LAP, you can avail the loan to meet your immediate financial needs.