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  • January 31, 2024
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What is a Loan Against Property and Its Benefits ?

A loan against property is a type of secured loan where individuals pledge their residential or commercial property as collateral to avail funds from a lender. The lender evaluates the property’s value and offers a loan amount based on it. But what is a loan against property? It’s something completely different from a personal, car, or housing loan. Let’s dive into this blog to understand what a loan against property is and its benefits. Benefits of a loan against property include:
  1. Lower interest rates compared to unsecured loans like personal loans or credit cards.
  2. Higher loan amounts can be availed due to the property’s value.
  3. Flexible repayment options and longer tenure for repayment.
  4. Can be used for various purposes such as business expansion, debt consolidation, education, or medical expenses.
 Loan Against Property (LAP)   A Loan Against Property (LAP) is a type of secured loan offered by financial institutions where individuals can pledge their owned residential or commercial property as collateral to secure funds. The loan amount sanctioned by the lender is typically a percentage of the property’s market value. The borrower retains ownership of the property but risks losing it if they fail to repay the loan as per the agreed terms and conditions.
The purposes of a Loan Against Property (LAP) include:
  1. Business expansion
  2. Debt consolidation
  3. Funding education expenses
  4. Meeting medical emergencies
  5. Home renovations or repairs
  6. Investing in a new venture or project
  7. Financing a wedding or family event
  8. Taking a holiday or vacation
  9. Any other significant financial requirement where substantial funds are needed.
 Benefits of a Loan Against Property
  1. Lower Interest Rates: LAP typically comes with lower interest rates compared to personal loans or credit cards since it’s a secured loan. Lenders have the property as collateral, reducing their risk.
  2. Higher Loan Amounts: You can usually borrow a higher amount with LAP compared to other types of loans because the loan amount is based on the value of the property you pledge as collateral.
  3. Longer Repayment Tenure: LAP often offers longer repayment tenures, making it easier for borrowers to manage their repayments with smaller monthly installments.
  4. Flexible Use of Funds: Unlike home loans, where the funds must be used for purchasing a property, LAP provides flexibility in using the funds. You can use the money for various purposes such as business expansion, education, medical emergencies, debt consolidation, etc.
  5. Quick Processing: Since LAP is a secured loan and involves less documentation compared to other loans, the processing time is relatively quicker.
  6. Improvement of Credit Score: Timely repayment of LAP installments can positively impact your credit score, making it easier for you to access credit in the future at favorable terms.
  7. Tax Benefits: Just like a home loan, the interest paid on LAP is eligible for tax deductions under Section 24 of the Income Tax Act. However, tax benefits may vary based on individual circumstances, so it’s advisable to consult a tax advisor.
  8. Preservation of Ownership: While you pledge your property as collateral, you retain ownership and possession of it. As long as you repay the loan as per the terms, you can continue to use and benefit from the property.
  9. Diverse Eligibility: LAP is available to a wide range of individuals, including self-employed professionals, businessmen, salaried individuals, etc., making it accessible to a broader segment of borrowers.
  10. Emergency Financial Support : LAP can serve as a valuable resource during financial emergencies when you need access to substantial funds quickly.