What is a Loan against Property and What are its Benefits?

Posted on Tuesday, June 6th, 2023 | By IndusInd Bank

A loan against property refers to mortgaging a property you own to obtain a loan for your business or personal needs. This is a secured loan that offers benefits such as low interest rate, higher loan amount, longer repayment tenure, tax deductions, and nil to negligible foreclosure charges.

Sound and early financial planning can help you weather many storms. All the same, it is impossible to foresee emergencies of an unprecedented nature that can strike at an unexpected moment, toppling your plans and forcing you to dip into your savings or take out a loan. No matter how undesirable you find the idea of taking out a loan, a loan is sometimes the only financial succour in the hour of end. Besides, a loan that suits your needs and repayment capacity could give you support and provide genuine benefits in the short and long term. Today, many financial experts recommend a loan against property for those looking to take out a higher loan amount. This type of loan allows you to unlock the value of your property, while continuing to occupy it during the loan period. Read on to get the complete lowdown on loan against property and its key benefits.

What is a Loan Against Property?

In simple terms, a loan against property (LAP) is a secured loan that lets you pledge your residential or commercial property in exchange for a loan. The loan amount is typically a certain percentage of the current market value of the property. If you fail to repay the loan, the bank may recover the money by auctioning your property.

Loan Against Property Benefits

1) Lower Rate of Interest

LAP rates of interest are significantly lower as compared to unsecured loans such as a personal loan on account of the low risk factor faced by the lender – any potential losses may be recovered by making a legal claim on your property.

2) Longer Repayment Tenure

An LAP allows you to repay the loan through convenient EMIs over an extended period of time, stretching up to 20 years.

3) Higher Loan Amount

An LAP is an ideal option if you need a large amount of funds. Depending on the property – residential or commercial, occupied or vacant, and so on – the lender could sanction up to 70-80% of the property’s current market value.

4) Tax Benefits

Subject to the use of your loan amount, you may avail of certain tax benefits on interest payments. Under Section 37(1) of the Income Tax Act, you can claim tax deductions on the interest payments and processing fees if you use your loan for business purposes That said, you cannot claim a deduction directly. To claim tax benefits under this section, you must fulfil the following criteria-

• Your expenditure must only be for business and professional purposes
• It must not be of a capital nature
• Your expenditure must not be covered under sections 30-36 of the IT Act
• You must have incurred the expense in the previous financial year

Likewise, If you are salaried, you can claim a tax deduction against LAP under section 24(B) of the IT Act. However, this is only valid if you use the loan amount to buy a new house. You can claim tax deductions up to Rs. 2 lakhs only on the interest amount.

5) Nil to Negligible Foreclosure charges

According to an RBI circular, you do not have to payforeclosure charges/pre-payment penalties on any floating rate term loan sanctioned, for purposes other than business, to individual borrowers with or without co-obligant(s).. As for LAPs with a fixed rate of interest, you may need to pay a foreclosure charge ranging between 2 percent to 4 percent of the principal outstanding loan amount.

Opt for IndusInd Bank Loan against Property

IndusInd Bank offers specially devised “loan against property” solutions to help you effectively unlock the hidden value of your property. You may use this multi-purpose loan to fulfil an array of personal or business needs. The key loan against property benefitsat IndusInd Bank are:

Ø  Access to a higher loan amount

Ø  Attractive interest rates

Ø  Long and flexible repayment tenure extendable up to 20 years

Ø  Loan amount can be used to fulfil any business or personal need – no questions asked

Ø  Simple eligibility criteria and fast, hassle-free process for raising immediate, long-term funds

Ø  Doorstep banking services

It must be noted that while your property serves as a collateral for your loan, you still retain its ownership and can continue using it like before. At IndusInd Bank, you may apply for a loan against property online and our representatives will subsequently get in touch to help you complete the process. You could also visit your nearest IndusInd Bank branch for more details.

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision.  IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.