A popular solution for a long-term loan has always been Loan Against Property (LAP). LAP can simply be defined as borrowing a large sum of money from an institute such as a bank by vouchsafing your property to the bank. The LAP is seen as a viable option for borrowing cash as the valuation of the property is always high and hence can assist in securing a larger loan.
Even though borrowing money through facilitating your property to a bank may sound an interesting proposition, it may be noted that it does come with a fair share of pros and cons. Hence it is mandatory and strongly advisable that care should be taken when deciding to take a long-term loan. One of the most appropriate ways is to consult a financial advisory firm like ProBizAdvisor to understand your eligibility and likelihood of getting a Loan Against Property (LAP).
Presenting below are the advantages and risks that are associated with a loan against property.
Advantages of Loan against Property
One of the major benefits of LAP is that the interest rates are fairly low as compared to the personal loans. The loan against property interest rates ranges from 11 to 15% per annum and consist of a tenure that lasts from 1 to 9 years. The tenure can also be extended up to 15 years.
The other advantage of LAPs is that loan can be acquired against a self-owned property or also with a property that has been leased out. Looking at the finer aspect one can realize that LAPs have the capability to monetize an asset that is lying idle.
LAPs have a unique feature of as to how the loan amount can be received. You can either avail it as a full one-time payment, or can be received as an overdraft facility.
One other unique facility the LAP provides is the no prepayment of penalty. This makes it convenient for individual borrowers to forgo the penalty in case of a floating rate loan.
Disadvantages of Loan against Property
When applied for a LAP the wait time to secure the loan is quite long. Banks need to do a background check on the individual applying for a loan. This is done in order to secure that the candidate wanting a loan is legitimate. This results in some time consumption which can be frustrating at times.
A huge amount of scrutiny from the banks also is one of the drawbacks. Checks like credit score, repayment capabilities are just some of the various parameters which will be examined by the bank. This also can be the factor in you getting delayed in securing a loan.
One of the cons of an assessing a property from different banks is that different banks give different property valuation. There is no standard set pattern for the valuation. This can cause disparity in getting the loan amount. The usual expectancy should be 70% of the total worth property.
Taxes are not exempted from LAP. This can also be a negative factor in determining whether one should avail the Loan against property facility.
The final and the biggest risk with a loan against property is that the bank possesses full authority to sell your property and then claim its dues in the advent of you not being able to repay the loan.
Looking at all the pros and cons, you may or may not want to opt for a LAP, considering the urgency of your requirement. You would do well to consult professional finance advisors like ProBizAdvisor (based out of Mumbai, India) who can provide you with the right guidance. With them at the helm, the responsibility of doing a thorough research before planning to borrow a loan, will be with them!