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Why people opt for loan against property in India


If you’re in urgent need of liquid cash, your credit score is low, and you don’t have any other collateral to offer up as security, then a loan against property might be a good option for you. A loan against property in India is one alternative option worth considering.  With this kind of loan, you don’t have to sell your property to raise adequate funds. The lender instead uses your home or land as collateral and lets you borrow up to 5 crores. 

In this guide, you will understand why people opt for loan against property in India, the advantages it offers over traditional bank loans, and how you can take advantage of this helpful financing technique yourself.

Benefits of Loan Against Property

  • Availing of a loan against property is easier in India.

There are several reasons why people opt for loan against property in India. Lending agencies and banks prefer to give out loans to those who want a loan against their property, as they have collateral on their side. This collateral is the property itself, which means that if they fail to repay the loan, the lending agency or bank can take away the property and sell it off to recover some of the money owed.  

There are also other benefits when taking out a loan against your property: 

  1. You don’t need to go through any credit checks as you would when applying for a personal loan
  2. Interest rates tend to be lower because lenders know you’re putting up valuable property as security. 
  3. While your personal credit score will still play an important role in determining what kind of interest rate you get on your mortgage, there’s less emphasis placed on it than there is with a personal mortgage.

The downside of opting for a loan against property is that you are taking equity from your home by making a repayment instalment. As you continue paying instalments over time, you will gradually pay more than what your home was originally worth when you bought it.

  • The loan amount can be higher.

The basic idea behind such loans is that the lender offers to buy your property and will give you money in return. This amount can be higher than the actual market value of the property but is usually lower than the current market price to ensure that your property does not lose its value. Moreover, with a loan against property, you can get cash up-front which would otherwise take a while through traditional lending methods. 

A loan against property also has the advantage of being easier to qualify for as it just requires a residential or commercial property as collateral without requiring any other form of personal guarantee or security.

  • The repayment period is longer.

A loan against property is a popular choice in India because the repayment period is longer. For example, if you want to buy a house and can’t afford it outright, you could take out a mortgage or a loan against property. The interest rate will be higher with this option because it’s riskier for the lender. As with mortgages, you would need to repay the loan over several years rather than just one lump sum. Another advantage of loans against property is that they are often cheaper. They are a good way of buying expensive assets like cars, boats, etc., without spending all your savings on them. Loans also provide flexibility; you can use the money however you want without specific restrictions and deadlines. However, loans have risks, such as being unable to pay off the loan due to unemployment or illness, which means taking up another loan might be required.

  • The interest rate is lower.

Loan against property interest rates is lower than the interest rates on a personal loan.  Moreover, it’s easier to find lenders who are willing to offer this type of financing, and they don’t require as much documentation from borrowers as banks or other financial institutions. 

The process is simple; you borrow money by taking out a second mortgage against your property which may be residential or commercial (or both).  You then repay the amount borrowed over an agreed-upon period with monthly instalments. Once you have paid off the amount owed, ownership of your home will go back to you. 

  • The income tax benefit

Another profitable benefit of a loan against property is the tax break. A salaried employee can claim tax benefits on the interest paid (up to INR 1,50,000 to 2,00,000) for a loan against property under Section 24 of the Income Tax Act, 1961, rather than the principal. 

  • The loan can be used for a variety of expenses 

People opt for a loan against their property because they need some form of capital to finance an investment or purchase. They may also opt for this type of loan if they need money but don’t want to sell their property and take a loss on the transaction. Most people use this type of loan to purchase a home, but it can be used for any number of purposes. A person can use the money from the loan for anything that is allowed by the lender’s terms and conditions. The borrower has to repay the loan with interest, so he pays back more than he borrowed. If the borrower doesn’t repay his debt according to the agreement, he risks losing his home.


As you can see, there are a lot of reasons why people opt for a loan against property. Whether it be to take care of their expenses, save up for emergencies, or start a business, there are many reasons and benefits to taking out a loan against property in India. Nowadays, this form of lending is very popular in the country. Lenders and borrowers alike can benefit from the process as long as they understand how it works and the risks that come with it.

 If you’re interested in learning more about these options, contact Piramal Finance today.