Taking Loan Against Property? Things You Should Know

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Taking Loan Against Property? Things You Should
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Loan Against Property Srishti Chandola
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Loan against property has come up as one of the
most popular forms of the long-term loans,
especially along with self-employed. As per the
report from CRISIL, the loan category is expected
to grow over 22 annually over next 4 years.
There, however, are fewer points which the
borrowers should keep in their mind. Key
features As opposed to the personal loans, the
interest rate on the LAPs is much lower as it is
pretty secured to the house. The range of the
interest rate is from 11.5-15 per annum as well
as the tenure is from 1-9 years which can
actually be extended up t 15 years in comparison
to only 5 years in case of the personal loan. You
can also receive the amount of loan lump sum or
as the overdraft facility. Before approving the
loan, all the financial institutions will check
in your income, debtservicing obligations as well
as your credit score. LAPs are given on the
freehold property as well as the owner must have
clear vision and title to it. Also, to reduce the
risk, most of the banks proffer loans up to 50-65
percent of the value of the property, while some
of the non-banking financial companies go up to
over 75. The processing fee ranges from 0.5-1.5
percent. The loans are accepted when
self-employed can actually show the earning track
record of over 3 years, especially through income
tax returns. Advantages LAPs allow the property
owners to monetize the idle asset. The loans can
actually be taken against both, the property and
self-occupied that has been leased out. The
tenure of LAP is longer as one can get the larger
amount in comparison to the personal loan, which
can't exceed Rs 10 lakhs.
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Disadvantages
The prime risk in Lap is that you can lose the
property that you have borrowed against if there
is default in the loan payment. Also, unlike the
home loan, there is no tax benefit to a salaried
individual on the interest paid as well as the
principal amount. Points to remember Before you
take the loan, assess the cash flows as well as
the repayment capacity. People at times take the
LAP as it is cheaper but deploy it in the avenues
that are pretty risky. Taking the loan to begin
new ventures, it could be riskier than if money
is used to expand the established business. If
you default, the credit score will actually be
affected, the penalty will be charged and in a
worst-case scenario, one could lose the
property. People tend to put the risk as an asset
that is worth much more, for the loan of a
smaller amount. For example, a home is worth Rs 5
Cr is put up as the security for Rs 50 lakh loan.
Instead, explore the loan against share
certificates, gold, insurance policies, etc. at
times, the businessmen opt for Laps to avail the
tax deduction on interest paid. The borrowers
must get in good tax advice. The funds need to be
clearly identified as having deployed for
expansion of business to be able to avail the tax
deduction. Lastly, if one expects some of the
cash flows as to take the loan as the overdraft
facility and not the term loan. Whatever actually
surprise you to get the park in overdraft
account. This certainly will enable you to lower
the interest cost.
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