Loan against property:
Loan against property is a kind of credit being opted for buying an alternate property or for the personal loan purpose such as marriage purpose, medical purpose, travel loan or education loan. If the applicant is in need of money and own the property then the loan against the property is an ideal way for opting loans. Usually people have an approach of seeing an extra property as source of earning rental or sell it at an appreciated cost. If the individual is in need of funds he/she can opt for loan against property so as raise to get some liquid able cash in hand.
What is loan against property?
The loan against property is a concept where in the applicant can avail credit benefit on mortgaging property. Loan against property is like a security deposit being mortgaged to the lender bank/NBFC so as to get some liquid cash in hand. In case of the applicant unable to repay the loan with interest amount as well as principal amount the attached properties can be sealed by the bank and the amount can be recovered by bank/NBFC. The loan against property is a cheaper way to opt for loans at a lower interest rates.
Types of loan against property interest rate:
Fixed interest rate: In this kind of loan the fixed interest rates are applicable for the borrower so as to repay the interest along with the principal amount. The interest rates are fixed during the processing of loan and the same interest rate borrower has to pay till the end. The interest rates for loan against property with fixed rates is slightly higher as compared to flexi-scheme.
Floating interest rates on loans: In case of floating interest rates the borrower is charged as per the fluctuating market rates depending on the market conditions is charged. When the interest rates go on a higher side the borrower is charged higher amount while when interest rates goes low borrower is charged lesser amount.
The floating rates are charged as per the Marginal cost of funds based lending rates. The rates are published on website and are changed potentially.
Benefits of loan against property versus personal loan:
Lower interest rate: Taking a loan against property or loan against security is a cheaper alternative as compared to flexible end use loans, like a personal loan. A loan against property is a secured loan which means lenders can safeguard their property as lending risk with your property as collateral. Generally the loan against property is charged at an interest rate of 12-16% while the interest rates on personal loan is in the range of 15-22%. Of course the lender will fix the exact interest rate on loan taking into account credit profile, prevailing market rate and internal policy regulations.
Larger amount loan: The size of the loan depends on the value of the property. Generally the higher the value of the property higher is the credit limit extended to the customer. Moreover this larger amount comes at a lower interest rate as compared to personal loan.
Longer repayment period: Since it is a secured lending loan lenders have lower risk and able to provide longer duration of loan. The loan against property can extend up to 15 years while as for the personal loan is granted for a duration of 1-5 years.
Benefits for taking loan against property:
- The property or a brand new property fetches higher value if in case it is not an age old ones as the market value of the property is higher than that of a old used property. Thus the borrower can opt for higher credit limit.
- Simpler documentation process: Since most of the paper-work is done while buying the property, the documentation required for loan against the property is simple. It requires property with clear titles and documentation as well as there should be no legal disputes, inheritance share, already existing mortgages.
- End-use-flexibility: A loan against property helps borrower spend loan amount for any purpose he/she wishes. Borrower can use it to expand business thus a loan against property is beneficial.
Thus we can conclude that the loan taken against property is beneficial as there is surety to lender as well as borrower with asset guarantee scheme. Also for a brand new property borrower can take higher loans as the market value fetched for property is higher thus higher amount of loan can be secured.