Taking a loan against property is quite beneficial to meet your financial requirements. Especially if it’s an appreciating property, getting a loan against it is often better than selling it. You need to satisfy all loans against property eligibility criteria like personal loans and home loans to obtain it. But you have to be mindful of these six factors before securing a loan against a property.
1. Loan Amount
Banks usually provide upto 65% of the property’s current market value. But some lenders can receive a high loan value upto 80-90% of the value of the property. A high loan value is subjected to upper limits such as Rs 5 crore or Rs 7 crore as per the terms of the lender.
You should only choose a high-value property to secure a loan against it. Check out other loan options and take out a loan against property only if the upper limit is higher than other loans. Keeping a property as a lien for a minimum loan amount is not a sensible thing to do.
The associated terms and conditions of the lender might depend on whether you are taking the loan against a residential or commercial property. Properties with ownership disputes or properties that are in dilapidated condition are not eligible for a loan against property.
2. Interest Rate
A loan against property offers a low-interest amount. The loan against property interest rate varies from 10-14%. You should compare the interest rate charged by more than one lender. It will help you settle for the lowest interest rate for a loan against property.
3. Loan Tenure
A loan against property tenure is often as high as 20 years. Therefore, it is much more beneficial than loans with short tenures like personal loans or car loans. A longer loan tenure will mean that you have to pay a low EMI amount. But at the same time, a long tenure will also cause you to pay a higher interest rate.
4. Processing Time
A loan against property revolves around a prolonged processing time. The lender needs time to assess all documents related to your property. After that, the lender will also perform a technical appraisal of the property. Your income will also be verified to determine your repayment capability. An analysis of all these factors can take around a month to complete. Therefore, try getting a loan against property only if the funding isn’t urgent.
5. Tax Benefits
Before applying for a loan against property, you should know it does not provide any tax benefits. In the case of education loans, the interest paid on them is deducted from your taxable income. Home loans can also offer tax benefits over interest paid and principal prepayment. A lack of tax benefits is one of the downsides of getting a loan against property.
6. Additional Charges
Similar to all other loans, a loan against property also requires processing charges. The processing fee ranges from 1-2% of the loan amount along with taxes. Other charges, such as prepayment penalties on loans taken against a fixed interest rate and penal interest charges, also need to be paid. You should consider how many additional charges you have to bear before choosing your lender.
A loan against property is an optimal choice for most borrowers due to the loan amount, tenure, and interest rate. On the other hand, you enjoy no tax benefits and wait for a long time to obtain them.
Several government and private banks in India are offering a loan against property for upto to Rs 15 lakh. It will not be too difficult to find a loan against property below 10% per annum and having a repayment tenure of over a decade.