A loan against property (LAP) is a secured loan provided by banks, Housing Finance Companies, and Non-Bank Financial Organisations (NBFCs) against residential or commercial real estate. When compared to a personal loan or a company loan, these loans normally have a lower interest rate and are disbursed faster. Such loans are available to anyone who legally owns a property, whether they are salaried or self-employed in a commercial or professional setting.
A loan secured against real estate may be your best option for covering personal needs because of the following reasons:
- Zero End-use Restrictions: One of the most appealing features of a mortgage loan is the ability to use the funds for a variety of purposes. Loans against property are sanctioned without any end-use restrictions, which allow borrowers to address any expense they want, without any limitations.
- Longer Payback Period: Loan against property repayment tenors can stretch up to nearly 18 years, to accommodate for a flexible repayment schedule.
- Competitive Interest Rate: Borrowers can benefit from competitive loan against property interest rates that drives down the total cost of borrowing, as opposed to other unsecured loans, that come at significantly higher lending rates.
A Guide to Managing Expenses with a Loan Against Property
- Control your debt-to-income ratio
Your debt-to-income ratio needs to be under the given parameter, even when you’re servicing a loan. The debt-to-income ratio is break up of how much you earn as income, and how much of the income is directed towards addressing your debt payments. If your debt-to-income ratio is too high, then you will need to reconsider some of your ongoing loan account.
- Make Part-Prepayments
An effective way to reduce your loan against property balance is by making frequent part-prepayments toward your repayment amount, above the loan EMI. This helps reduce the outstanding amount, and the interest pile up on it.
- Getting Rid of Expensive Debts
It’s critical to pay off any past high-interest obligations before taking out a new loan. If not managed effectively, loan accumulation can result in not just uncomfortable financial situations, but also a major disaster. As a result, if you require a new loan, be certain you are debt-free from earlier borrowings.
- Develop Healthy Spending Habits
It may appear to be general advice, but it is a way of life that not only instils financial discipline but also aids in the improvement of overall lifestyle habits. Don’t spend more money on something else than you have budgeted for and end up incurring a penalty for being late next month.
Documents Required for a Loan Against Property
- Salary slips from the last few months for those who are employed
- Bank statements from the previous three months, or depending on the loan institution’s requirements,
- Any relevant identity proof, such as a PAN or Aadhaar card.
- Proof of address is required.
- Copies of the paperwork pertaining to the property on which the loan is based.
- Income Tax Returns
Thus, it is critical to understand two things before you opt for a loan against property. First, know the eligibility criteria of the particular lender before applying for a loan with them in order to reduce the risks of rejection and obtain the desired loan amount. Secondly and most importantly, make sure to manage your expenses properly so that there is no added financial burden on you alongside the loan.