The unchanged RBI repo rate of 4% has made current borrowing rates accessible for individuals planning to secure financing for a longer tenor. In this segment, secured credits like loan against property gained popularity owing to their varied benefits.
The credit form extends high-value loans that are flexible in terms usage. Individuals looking for substantial funds to cover personal expenses can avail the same against a residential or commercial mortgage. This is again a good way to generate equity from immovable assets situated at prime locations.
However, the financial institution scrutinises an applicant’s eligibility before disbursing the LAP loan. The monthly obligation and loan amount are dependent on a borrower’s credit history.
Hence an applicant needs to check certain factors before applying for this credit. Following these points would help them make an informed decision and enjoy lucrative savings.
Things to know about a loan against property
Both potential and the existing borrower must research these factors before applying –
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Loan eligibility
Lenders scrutinise the applicant’s data like credit report, CIBIL score, repayment capability, etc., before loan approval. However, as the LAP is secured in nature, financial institutions levy simple eligibility parameters. Typically, salaried borrowers have to maintain a stable income source and work in a private or public firm. They must fall in the age bracket of 33 to 58 years. On the other hand, a self-employed applicant needs to fall under the age group of 25-70 years.
Apart from these points, borrowers must not have multiple financial liabilities or outstanding balance as it increases the chances of loan rejection.
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Selecting the right lender
Since this is a high-value loan, available against a longer tenor, choosing the right lender becomes a priority. Individuals must compare different lenders and their features before choosing one.
It is suggested not to focus one’s research only on loan against property interest rate or EMI. Applicants must evaluate the linked charges like processing fee, foreclosure charges, prepayment charges, late payment penalty, etc. Moreover, habits like over-leveraging must be avoided since it can raise the risk of defaulting and lead to the loss of property in the process. Again keeping a disputed property as collateral could lead to a loan against property application rejection.
Hence finding the right lender is essential as it can help in gaining customised benefits. Some HFCs provide pre-approved offers that make the loan application hassle-free and swift. Such offers are usually offered on products like LAP, home loan, etc. Check your pre-approved offer by entering a name and contact number.
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Tax benefits
The home loan tax benefit on LAP loan depends on the fund usage. Borrowers can gain deductions on the interest paid, documentation charges and processing fee when shown as business expenses under Section 37(1) of the Income Tax Act.
Moreover, if the loan amount is utilised for purchasing a property or house, a borrower can claim deductions on interest repaid under Section 24(b). Individuals can gain up to Rs.2 lakh as a tax benefit, provided that he/she can prove the link between borrowing and fund usage. However, an individual can’t claim deductions on the principal repayment.
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Repayment tenor
Borrowers can gain the flexibility to repay the outstanding balance for up to thirty years. This longer repayment tenor reduces the EMI liability for each month.
However, it is imperative to know that it can increase the overall interest outgo. This issue can be managed by applying certain methods like opting for prepayment when there is a surplus.
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Documentation
Knowing about documentation is another vital factor for an easy loan against property application. Typically, borrowers have to submit simple documents like –
- Salary slips
- Aadhaar card or PAN card
- Address proof
- Bank statements of at least six months
- IT returns
- Copy of the mortgaged land papers.
These are certain factors every loan against property borrower must be aware of. Keeping track of these points would help in making an informed decision and better savings. So, research about the lenders and maintain timely repayments to optimise the borrowing experience.
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