For people and businesses in need of a substantial amount of money, a loan against property (LAP) has become a very beneficial choice. It provides a way to finance major life events, business growth, or a significant life event.
By utilising real estate as collateral, borrowers can access larger loan amounts at competitive interest rates, easing some of the financial burdens associated with unsecured loans. In this article, we will explore the five key advantages of loans against property over collateral-free loans in detail.
Loan against property advantages
1. Lower interest rates
The lower interest rate of a loan secured by property is one of its biggest benefits over loans made without security. As LAP is a secured loan, the lender’s risk is decreased as the borrower provides real estate as security. So you can potentially fetch competitive interest rates because of the decreased risk. On the other hand, because unsecured loans don’t have collateral, the lender is taking on greater risk and hence charges higher interest rates.
Reduced interest rates directly influence monthly payments, helping you to manage your money better. Because of the lower cost of borrowing, LAP is a desirable choice for financial requirements pertaining to both personal and business purposes.
2. Higher loan amount
Loans secured by property often allow you to obtain larger loan amounts than loans without collateral. The valuation of the property being mortgaged determines the amount approved. Lenders might offer between 70% and 75% of the property’s current market value, depending upon the property and loan requirements. This allows you to get a larger loan value than with an unsecured loan.
For example, if you own property valued at Rs. 1 crore, you may be eligible for a loan of up to Rs. 60 lakhs to Rs. 70 lakhs.
This is especially helpful for individuals or businesses that need a large amount of money for big purchases, expansion plans, or long-term investments. Borrowers can obtain large sums of money using a Loan Against Property without sacrificing the calibre or scope of their financial goals.
3. Flexible repayment tenure
Another advantage of a loan against property is that the repayment period is flexible. Depending on the lenders, the tenure can last up to 20 years. Due to the extended duration, you can spread out your payments over a longer time frame, reducing the strain of large monthly instalments.
Collateral-free loans, on the other hand, usually have shorter repayment terms, between one and five years. Due to the shorter tenure and higher monthly payment amounts, you may find it more difficult to manage your finances, particularly when taking out significant loans.
Because of the Loan Against Property’s flexible repayment terms, you can select a loan term that best suits your ability to repay the debt. To lower your monthly payments, you may select a longer tenure, albeit by paying higher interest amount or you can choose a shorter tenure if you want to pay back the loan faster.
Additionally, some lenders provide prepayment alternatives, which let you close the loan early without paying hefty penalties. Collateral-free loans may not always offer this flexibility, which makes LAP a more flexible choice.
4. Tax benefits
There are tax advantages associated with Loans Against Property, especially if the loan is used for a company or to buy more real estate. If you use your loan proceeds for specified reasons, such as expanding your business or buying a new house, you may be able to deduct interest from your taxes under the Income Tax Act of 1961.
For example, under Section 24(b) of the Income Tax Act, you can be qualified for an annual interest deduction of up to Rs. 2 lakhs if the loan is used to build or buy a residential property. In addition, the interest on the loan can be written off as a business expense and deducted from taxable income if it is used for business purposes.
LAP offers long-term savings by lowering the tax burden, which increases its appeal to borrowers.
5. Multipurpose loan
A Loan Against Property (LAP) also has the important benefit of being a multipurpose loan. An LAP offers you the flexibility of end-use of funds, making it simpler to manage various high-value commitments, such as financing your child’s further education, a wedding, medical costs, or business expansion.
For example, if a business owner wants to expand their operations and needs Rs. 50 lakhs for new equipment, infrastructure, or additional resources, a Loan Against Property could easily cover these costs. Without this option, the borrower may need to look at alternative, higher-cost funding sources, which could stretch their financial resources and add to long-term stress.
Additionally, the pressure of repaying such substantial expenses is greatly reduced because LAP offers flexible repayment plans and competitive interest rates. This way, you can take advantage of lower monthly instalments over a longer repayment period. This adaptability can be very helpful in managing irregular cash flows, whether they are associated with personal or business-related spending.
To Sum Up
There are multiple loan against property advantages over collateral-free loans, making it an ideal option for those looking for substantial funds at more affordable rates. LAP offers a dependable and affordable means of achieving financial objectives, whether they be personal or business-related. Benefits include reduced interest rates, bigger loan amounts, flexible payback terms, tax advantages, and the ease with which huge expenses may be managed. Unlike collateral-free loans, which often come with higher costs and restrictions, a LAP offers more flexibility and long-term savings.
Manage your urgent financial requirements with a flexible loan against property with Tata Capital. Tata Capital offers competitive interest rates, high loan amounts, and flexible repayment terms to ensure you have the financial backing you need.
What’s more, we offer a simple application process online and have minimal documentation requirements.
20 November 2024
5 mins read
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