From covering unforeseen financial crises to making an expensive purchase, loans always come in handy. With minimal eligibility, quick application and approval, there are a number of financial institutes offering lucrative loan-related schemes for various purposes. These schemes have made life simpler as taking loans has become much less of a burden.
If you have an emergency family crisis or if you are looking for a loan that could be used for a business purpose, you might consider taking a loan against property. Now, let us discuss some questions and answers that might help you if you are considering taking up a loan against property.
What is a loan against property?
LAP is a secured financing mode that can be utilitarian for individuals as well as business entrepreneurs. To avail the benefits of this kind of loan, self-owned property can be mortgaged. Based on the property’s value, a certain percentage of your loan amount will be calculated. The interest rates on loans against property are lesser than unsecured loans.
What is the purpose of loan against property?
If taken on an individual basis, a loan against property helps to meet essential life goals like marriage, child education or arranging money for a home or a car.
If the loan against property is taken for business purposes, it helps with necessary funds for business expansion, R&D, marketing, product development and promotion.
Although the documentation requirements vary from one to another, self-employed professionals, salaried individuals, self-employed individuals are eligible for opting for this kind of loan.
What are the benefits of a loan against property?
You can avail certain benefits when you are applying for a loan against a property. Let us take a look at some of the benefits of a loan against property.
- Interest rates are lower in terms of secured loans like loans against property. As a consequence, the EMIs are lower too, which makes the repayment easier for the borrower.
- Loan against property unlocks the asset’s dormant potential. So, the borrower can still use and own the property while availing of the benefits of the loan. The only thing important here for the borrower needs to pay the EMI on time.
- LAP has a long repayment tenure.
What kind of documents are required for a loan against property?
Based on the eligibility of the borrower, the list of documents varies.
Salaried individuals need to produce the following papers.
- Income tax returns of last 3 years, salary slips or Form 16 from the employer.
- Bank statement of previous months
If the loan is taken for business purposes, the borrower needs to produce the following papers.
- Shareholding patterns
- Partnership authority and deed
- ITR financials that are audited
- Bank statements along with balance sheets
- Incorporation for companies certification
Besides these specific documents, some general documents such as, PAN card, identity proof, passport size photographs, address proof, processing fee cheque and business continuity proof are required as well.
Are there any tax exemptions available?
Business people who have applied for loans against property, can avail tax incentives. In such a case, the borrower needs to provide evidence that the loan funds were used to develop his business conditions. Only then the borrower can claim a tax deduction on the entire amount of loan interest. Salaried individuals do not get any tax incentives in terms of paying their EMIs.
Property value is dynamic. It is up to the bank to determine the value of the property prior to the loan application. Individual banks have respective formal valuation processes and based on that, the loan amount is calculated. Property insurance is also a crucial factor. It needs to be insured against any type of natural calamity. Prepayment and part payment of the loan against property can be arranged after discussing with the responsible bank. Usually, commercial banks do not have any foreclosure charges for the prepayment.
