Individuals in today’s financial world frequently require a large sum of money for a variety of reasons such as establishing their business, supporting schooling or even purchasing land for the future. To fulfill all these requirements of life you might have to take out a loan. However, the standard loans may have strict terms and conditions but there is a lesser-known and highly advantageous alternative which is a loan against property. It works as a financial tool that provides a realistic answer for those looking to raise capital through real estate assets. In this blog, we will explore collateral loan as well its pros and considerations.
What is a Loan Against Property?
A loan against property is a secured loan that allows you to borrow money by using your property as collateral. This collateral could be residential, commercial or even a plot of land. Lenders assess the property’s value and issue a loan based on its market value which usually ranges between 40% to 60% of the property’s value. Although the borrower keeps ownership of the property throughout the loan tenure, the lender has the power to seize it if borrowers fail to repay.
Benefits of Loan Against Property
High Loan Sanction Amount
One of the main benefits of a loan for property is the large loan sanction amount available. In this kind of loan, lenders base the loan amount on the property’s fair market value. They do this by using a ratio called the loan to value ratio. After this, the lenders may provide you with up to 70% to 80% of your property’s market value for the loan tenure. This 70-80 percent translates to 5 crores which is a generous amount when compared to other secured and unsecured loans.
Competitive interest rates
As a loan against property is a secured loan, the lender is sure that they have a backup plan in case of default in repayment of the loan. In this kind of loan, your property serves as an excellent collateral. Therefore, lenders make loans against your property at lower interest rates than other types of house loans. However, the interest rates may vary with different lenders and normally range between 8% to 10% per year and can reach up to 20% depending on the lender. This low interest rate guarantees that you get the most out of a loan and ease the burden of making large EMI payments each month.
Quick Approval
It is one of the most significant benefits of a loan against property. When you apply for a Collateral loan the application and verification process are later than those for an unsecured loan. The unsecured loan lacks collateral thus the lender cannot rely on them as security. As a result, the application and eligibility criteria become more rigorous. Lenders even take months to approve non-collateral loans to check your repayment capacity. On the other hand, the online application for collateral loan is incredibly convenient and can expect the loan amount authorized on the same day.
Considerations Before Applying for a Collateral Loan
There are a few things that you need to consider before taking out a loan against your property:
Interest Rate: The interest date determines how much extra you need to pay on the original amount borrowed and this is important to consider. Interest rates might vary depending on a variety of factors such as income, credit score, outstanding loans and current economic conditions. So, negotiate a lower interest rate to get the most value out of your loan.
Fixed Vs Floating Interest Rates: When it comes to collateral loans you usually have the choice to choose between fixed and variable inert rates. While fixed rate loans have fixed interest rates and the EMI through the loan terms. However variable rates are not fixed and fluctuate based on market value. Therefore, make sure you do all your research before making a final call even if it is a loan for buying land.
Value of your Assets: The amount of loan you can get is heavily influenced by the value of the property you use as collateral. Lenders may offer different financing options for your property but make sure you have a detailed understanding and know the true value of your assets.
Conclusion
A loan against Property is a helpful tool that allows you to take out a loan against your property. It is the perfect choice if you’re looking to expand your business, cover personal costs or want a loan for buying land for future investment. Due to their lower interest rates, large loan amounts and flexible repayment options you can achieve your financial goal. Hence, with careful planning and intelligent decision making you can get a loan and realize your long-term dream.
