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Know the Benefits While Taking Loan Against Property

Are you thinking of expanding your business?

Know the Benefits While Taking Loan Against Property

Thursday October 12, 2017,

3 min Read

Are you thinking of expanding your business? The first and foremost thing that comes to your mind is the arrangement of finance. There are various ways you can organize for funds, and one of them is by making provisions for an advance. You can take a personal debt, or you apply for loan against your property.

Elements involved

When an advance is given against the mortgage of property, it is treated as a LAP. The objective while taking a loan against property  is providing finance to an individual who is in possession of a house property which is free from any sort of encumbrance.

Signing a declaration

The debt may be taken against a residential or commercial property. You need to sign a statement that while taking loan against property the funds cannot be utilized for any illegal activity. Nor can it be used for any speculative purposes.

Basis of calculation

The calculation of amount borrowed is done by working out a specific percentage of market value of asset.

Threshold amount

Most of the lending institutions have a specific amount beyond which they do not cross. This is called the threshold value. The terms are stricter than home loans.

Various needs

Apart from expansion of business, these kinds of debts are also taken for meeting the higher education expenses relating to the children, making payments for the son or daughter’s wedding expenses, meeting the medical bills.

Eligibility conditions

The eligibility criteria will differ from one financial institution to another. Some of the common elements that the financial institutions look are the level of income, the related expenses and the external monetary obligations in the market.

Cost of asset

The value of property mortgaged is another important factor that is taken into consideration.

Examining your financial details

They look into your details regarding the payment of obligations such as credit card and prior debts if any.

Numerous benefits

Since your property is retained as collateral, it is considered as a secured loan. Let us discuss the various benefits associated with a loan.

• Reduced interest rate

Compared to a personal debt, the interest percentage of LAP is quite lower. The bank rate may range about 12% to 15% whereas in a personal loan the rates may be around 15% to 25%.

• Almost negligible prepayment penalties

You can always apply for closure of the loan by making prepayments for the loan. In case of these types of advances, hardly any charges are involved if prepaying is made.

• Easy availability

As these advances are secured in every aspect, the financial institutions are more than willing to give funds. So the process of obtaining funds by these means is simple.

Lower equated monthly installment

Always examine the tenure of the money borrowed. An inverse relationship exists between EMI and tenure. If the tenure is longer, the EMI will be lower. Generally, these are available for a long tenure. They may go up to fifteen years. It is always a wise decision to take an advance with short tenure to have a low rate of interest.