A loan against property, as the name suggests, is the loan you get by pledging your property as collateral. The popularity of such loans stems from the fact that they come with a host of benefits. From a lower interest rate to a longer repayment period, there is more than one reason to consider these loans. So, without further ado, let’s get you familiarized with the benefits of taking a loan against your property.
Benefits of taking a loan against property
Taking a loan against your property comes with a host of advantages, such as the following:
Lucrative tax benefits on offer
The biggest benefit of taking a loan against your property is that you get tax benefits on your interest payments. Though there are certain guidelines to be followed to receive the tax benefits, given below are the two sections of the Income Tax Act, 1961 that are applicable for this:
- Section 37(1) – You get the deduction for using the loan against your property for business purposes. Tax benefits can be availed on processing fees and interest rates.
- Section 24(B) – If you use the loan to buy residential property, you are allowed to claim tax deductions on the interest rate. INR 2 lakh is the highest deduction that you can claim. However, you will have to show proof that you are truly using the money to buy residential property.
Get a higher loan amount sanctioned
When you take a personal loan against property, you can be sanctioned for a higher amount. Of course, the amount you get depends on a lot of factors, such as whether the property is vacant or occupied, commercial or residential, rented or not, and so on. However, depending on the value of the property, you can get a loan of INR 5 crores or more.
This is the most hassle-free way to secure a bigger loan to meet your expenses. It is hard to secure such a high amount through other kinds of loans.
An extended repayment tenure
Another advantage of taking a business loan against property is that you get an extended repayment tenure. Typically, personal loans have a tenure of five to seven years. If you take a higher loan amount, paying it back within a shorter tenure means huge EMIs every month. However, loans against your property can have a repayment tenure of fifteen to eighteen years.
Since you will be paying off a larger sum, this long tenure is particularly helpful. You can pay the money back without feeling the financial burden.
The availability of low-interest rates
From the lender’s perspective, a loan against your property is a secure option. They face a reduced risk because they can recover the money by making legal claims on the property.
Due to this sense of security, the loan against property rates of interest is always lower. Also, the fact that you get a longer repayment tenure further reduces the interest rate for the loan. Therefore, the monthly EMIs are easier to manage.
Eligibility criteria are simplified
As mentioned before, the lender feels more at ease about giving you the loan because you pledge your property to them. Due to this reason, the eligibility criteria are also much more relaxed for these loans compared to others.
Regardless of whether you take the loan for your business or personal uses, the parameters are credit history, minimum income, age limit, and general financial stability.
Easier to manage major expenses
By taking a loan against your property, you make it easier for you to handle the major expenditure. Things like home purchases, overseas education, renovations, and so on are unavoidable expenses.
It would affect your financial situation if you have to pay for all these through your savings. On the other hand, taking a loan would mean you can easily manage these expenditures without the need to empty your pockets.
Possible risks to be aware of for loans against property
There is no denying that loans against properties come with several advantages. However, you also need to be aware of the risks before you send your loan application. Keep in mind that the sole authority of the property goes to the lender if you default on the monthly payments. The lender has the right to sell your property to get their money back if the need arises.
Thus, if you choose to pledge your property, have a solid plan in place beforehand about the repayments. Consider your current income, repayment tenure, and interest rate in coming up with this plan.
The final note
So, if you need a bigger loan amount and have a good repayment plan in place, go ahead and apply for a loan against your property. You will find this loan a lot more hassle-free to manage and pay off than most other options.