If you need a substantial amount either for business or personal purposes, there are multiple avenues available. However, if you own a property it might make sense to take a loan against that property. Thus you wouldn’t have to sell your property and yet would be able to unlock its value.
You can use the funds raised from pledging your property for any purpose except for speculation. A loan against property provides various benefits that other loans do not offer.
Benefits of Availing Loan Against Property:
- Lower Interest Rate:
Lenders charge attractive rates of interest on loans offered against property. Thanks to a lower interest rate, the borrower’s EMI outflow would be lower. Hence, the borrower would be able to avail of the maximum possible loan which is offered against the property. Thanks to lower EMIs, the borrower would be able to repay the loan comfortably and reduce the chances of defaulting on any EMI payment. Over a longer tenure, the interest component of a loan is substantial. Since this is a secured loan, a borrower can enjoy lower interest rates and ensure that the interest component of a long term loan is reduced.
- Significant sanctioned amount
As compared to most other types of loans, the sanctioned amount in case of a loan against property is higher. In most cases, borrowers can avail up to 70% of the property’s value. Therefore a borrower wouldn’t have to borrow funds from multiple sources and can depend on a single lender.
- Income-tax benefits:
A loan against property would qualify for income-tax benefits based on the usage of the loan. A loan against property eligibility for an office complex may allow an individual to borrow against the property as well as claim the interest paid as a deduction against their taxable income earned from the business. Similarly, a salaried individual or a business owner who avails property loan for construction of the house would be able to avail the interest paid for acquisition or construction of such house for the reduction of their taxable income. An individual in the highest tax slab may save 30% whereas other individuals might be benefited as per their slab rate.
- Productive asset management:
Despite high market value, a property owner may not be making productive use of a vacant property. Tenants might be difficult to get and some of them may create hassles when it comes to paying rent on time. The rental yield in many areas may also not be attractive. However, the value of a vacant residential or commercial property can be unlocked by taking a loan against it.
By fulfilling the loan against property eligibility parameters, a property owner can avail of a loan against property and use the funds productively without having to sell the property. Thus, a borrower can make productive use of the asset (property in this case).
Documents Required To Avail The Loan:
As compared to the plethora of benefits offered by this loan, the loan against property documents required are not extensive. Self-employed or salaried individuals can apply for a loan against property without getting hassled about the documentation that would be required. Apart from the common documents like Identity proof, address proof, and income proof, documents in the form of Income Tax return, ownership proof of the property, bank statements, etc. are required. A salaried individual would also be required to submit the Form-16 received from their employer apart from salary slips for at least three months. A valuation of the property may also be submitted although the financial institution is most likely to conduct their due diligence.
Conclusion:
A loan against property is one of the easier methods to raise finance and capital for an individual due to the low-interest rate and large sanction amount that can be availed. A loan against property is an optimal method for obtaining funds as opposed to other loans which may impose higher rate of interest or may not be able to offer a substantial amount.
