Imagine that you are going through financial distress, and you are in dire need of extra funds. It’s too late to apply for a loan now, and your relatives aren’t in the position to offer monetary help in this situation. So, what’s the way out? Generally, it is quite a task to find a lender immediately when the situation gets tough. The only way to remain calm in difficult situations is to prepare for them beforehand. To handle a financial crisis with ease, approaching a lender is the best way out. But, how to know which financial product is beneficial to suit your needs? What if we tell you that your property can be the ultimate solution to handle your financial aid effortlessly?
In this article, we’ll discuss loan against property (LAP) and how your property has the potential to become the shoulder you need during stressful times.
What Is Loan Against Property?
Before discussing anything else, it is important to know what a loan against land or property is and why so many applicants trust it.
As the name suggests, a loan against property involves mortgaging your residential or commercial property to take a loan. The applicant’s property needs to be self-occupied or rented to be applicable for the loan. This loan can be beneficial for both salaried individuals and business persons. You can take up this loan to fund emergencies, child’s education, expand your business, and even a much-awaited vacation – you will not have to put forward any specific reason to apply for this loan.
Benefits of a Loan Against Property
By now, it’s already pretty clear that a loan against land is supremely beneficial for those times when you need extra funding to ease up your hardships. Here are some more reasons that make opting for a loan against property a smart decision.
- Flexible Tenure
The tenure of a loan against land can stretch up to 15 years, and the lender lets the applicant decide the tenure of the loan repayment based upon their capacity.
- Lower Interest Rate
Most people step back from applying for a loan because the rate of interest tends to be high. That isn’t an issue because the loan against property interest rate is much lower (usually starting from 9%), unlike other financial instruments.
- Continuous Ownership
If you apply for a loan against land, you will still have the property’s complete ownership. You will still be able to use the property just like you did before. The lender will only have custody of the sales deed and mother deed until the interest is fully paid.
- Easy To Take
A loan against property requires minimal paperwork, unlike other financial products. Most financial institutes sanction the loan within 5-7 days on successful verification. Some lenders even offer doorstep services so that you don’t have to visit the financial institute. Now you can also do the whole process online using the lender’s website.
What is the Application Process of Loan Against Property?
A loan against land is sanctioned after a few simple steps. The lender will assess some basic information about the applicant before approving the loan. At first, the lender will assess the net worth of the property the applicant wants to mortgage. Then the credit history of the applicant will be evaluated. This step plays a huge role in the determination of the rate of interest. So, the applicant needs to have a decent credit history of being eligible for a loan against property. The documentation needed for a loan against property is:
Proof of Identification (any)
- PAN Card
- Passport
- Voter ID
- Ration Card
- Driver’s License
Proof of Address (any)
- Passport
- Bank Passbook
- Utility Bill less than 2 months old (Telephone/Electricity Bill)
- Ration Card
Proof of Income (any)
- Form 16
- IT returns of last 3 years
- Certified letter from Employer
- Payslip of previous 2 months
Proof of Residence Ownership (any)
- Property documents
- Electricity bill
- Property maintenance bill
Other than these, you will also have to submit your bank statement details for the last 6 months, investment proof (fixed deposit, shares, etc.), and existing loans (if any).
Loan Against Property Vs Personal Loan: Which One is A Smarter Choice?
Before making the decision, you must know the ABCs of both loan against property and personal loan to make the right decision by comparing the pros and cons. Here are the differences –
- Loan Amount
Personal loans are unsecured loans that financial institutes provide without any collateral as security. Hence, this loan will not be the best choice if you need a large amount of money. A loan against property will assure your bigger loan amount depending on the property you are willing to mortgage.
- Processing Fee
Unlike a personal loan, a loan against a property processing fee is low. The processing fee of a personal loan ranges between 1.5%-2.5% of the loan amount whereas, the processing fee of a loan against property ranges between 0.5%-1.5%.
- Rate of Interest
A personal loan is much more expensive than a loan against property. A personal loan is usually offered at an 11%- 24% interest rate, whereas the loan against property interest rate starts from 9%. Plus, the lender will also allow you to choose between a fixed or floating rate of interest. The rate of interest will be determined based on your credit history. So, make sure to have a good credit history before applying for a loan against a property.
Conclusion
Both personal loans and loans against property come with their benefits. However, a loan against land comes with better offers as compared to a personal loan. A loan against property gives an applicant flexibility, higher loan amount, longer repayment tenure, lower interest rates, and many other benefits. Hence, if you require a large amount of money and security, a loan against property is the way to go.
