Finance

Why Loan Against Property Is A Better Option

What comes to your mind first when you think of starting or expanding a business?  You guessed it right. The first thing one thinks of is the requirement of funds. Cash flow is the backbone of all businesses.

Earlier arranging funds was a difficult task as the financial sector was not so developed. But with the growth of the financial sector now one has many options available. Various loans are offered for various purposes..

For business purposes lending institutions are offering different kinds of business loans. One can go for secured or unsecured loans. But it is seen that secured loan or loan against 

property is the better option.

A loan against property or LAP is a secured loan sanctioned by financial institutions by keeping the residential property or commercial property as the collateral. This loan can be used for various purposes like fur business, wedding, child’s education, etc

A loan against property has many advantages which are discussed below.

Low-Interest Rate

A loan against property is a loan given by financial institutions against any residential or commercial property. This loan is termed as low risk because if the borrower is not able to pay, then the lender can retrieve the amount by selling the property. Because of its low-risk nature, it attracts a low-interest rate. 

Get Larger Amount As Loan

In this type of loan lenders usually, sanction a larger amount as a loan. As this loan is given against property, the lender can sanction an amount of 75-90 % of the current market value of the property. This sum is usually more than the amount sanctioned in an unsecured or personal loan.

Longer Tenure

Another lucrative feature of this loan is the longer repayment period. The repayment period can go up to 15-20 years depending on the lender. This is very helpful when you repay a large amount. Because of longer tenure, one can reduce the monthly EMIs and ultimately result in lower expenses.

Tax Benefits

One of the major advantages of LAP is the tax benefits on interest payments. However, it depends on how you use your fund.

When you use your loan for business purposes it allows you to get tax benefits under Section 37 (1) of the income tax act 1961. You can obtain a tax benefit on interest paid and processing fees claiming the same as business expenses.

If you are using the loan to purchase residential property, you get a tax benefit under section 24(B) of the income tax act 1961. The maximum deduction allowed is Rs 2 lakh.

Get Loan With Low CIBIL Score

CIBIL score plays an important role in getting a loan. CIBIL score is basically the creditworthiness of a borrower. With a good credit score, one can easily get a loan but a low score makes it more difficult. 

But as LAP is considered a low-risk loan, one can get a loan under this scheme even if he has a low credit score. People with low CIBIL scores can always opt for LAP.

Transfer The Loan To Another Bank

As the financial sector is very competitive, lenders try to attract customers by giving benefits on interest rates. A loan against property allows you to transfer your loan account from one bank to another. One has the option to shift his/her loan account if another lender is offering lower interest compared to the existing one. By doing so the borrower can reduce the burden of monthly EMIs.

No Foreclosure Charges

Sometimes businesses/individuals use their surplus money to repay the loan before its due tenure. In the case of LAP, most financial institutions don’t charge any pre-closure fee. This feature makes this loan even more desirable.

Conclusion

Because of all these advantages many borrowers are choosing LAP. As you get a large amount under this loan, you can easily manage big expenses. This loan requires less paperwork which makes it even more preferable.

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