A study suggests that the loan against property market is set to grow at a CAGR of over 14% by FY2026. The growing market of this credit option is due to the several benefits it offers compared to other collateral-free loans.
Moreover, being a secured loan, the eligibility requirement isn’t just based on the individual’s CIBIL score.
To understand why LAP is better than collateral-free credit options, take a look at the advantages listed here.
Advantages of a loan against property
Unlike a collateral-free loan, LAP offers higher value funds at lower interest rates. Learn about the different advantages of a LAP compared to a collateral-free loan-
- Competitive interest rates
Loan against property interest rate is comparatively lower than collateral-free loans. Therefore, it reduces the financial burden and the total borrowing cost. However, in the case of a collateral-free loan, the interest rates are higher.
- Tax benefits on interest payment
Another primary benefit of a loan against property is that it comes with tax benefits if an individual uses the sanctioned amount for specific purposes. Here are two of the tax benefits applicable to LAP.
- Section 37(1): Tax benefitis applicable on interest payment if the loan amount is utilised for business purposes.
- Section 24(B): Tax deduction of up to Rs.2 lakh is applicable on the interest payment if the loan amount is utilised for purchasing a house
- High quantum funds
The loan amount sanctioned for a loan against property is comparatively higher as the monetary funding is dependent on the property’s value and LTV ratio. Various factors affect the amount of loan receivable. These include property location, type, age, etc. Financial institutions mostly prefer newly constructed residential property at a prime location.
- Flexi loan facilities
A Flexi loan facility allows an individual to borrow funds as per requirement and pay interest only for the used amount. As a result, applicants can pay interest-only EMIs and repay the principal amount by the end of the tenor. This assists in financial management and avoids debt accumulation. As such, applicants can lower EMIs with the Flexi hybrid LAP.
- Longer tenor
A key benefit of a loan against property is the extended tenor offered. Institutions offer loans for a tenor of up to 20 years, enabling proper loan repayment. A longer tenor reduces the mortgage loan interest rates and EMIs. Compared to this, a collateral-free loan comes with a tenor of up to 5 years.
This becomes an issue for individuals applying for a higher loan amount as the short tenor increases the EMI and interest payable each month. Use the LAP EMI calculator to determine the ideal tenor of your loan against property.
- Flexibility in loan amount usage
Since a loan against property offers a higher loan amount, an applicant can use the amount to fund big-ticket expenses. These expenses include home renovation, property purchase, business expansion, debt consolidation, higher education, or long-term medical treatment. However, an applicant should assess his/her repayment before applying for a certain loan amount.
Therefore, when drawing a comparison between collateral-free loans and a loan against property, it is more lucrative to apply for a LAP. It comes with lower LAP interest rates and helps access a higher loan value.
Also, individuals applying for a loan against property can simplify the application process by opting for pre-approved offers provided by leading financial institutions. These offers are also available on several financial products like home loans, loans against property, etc. Check your pre-approved offer by entering your name and contact details.
Certain institutions also provide additional advantages that make the loan against property application more lucrative and hassle-free. Hence, check the benefits provided by different financial institutions before applying for one.