Life is full of uncertainties and problems may crop up at any time. At such times, you may be standing face to face with a financial crunch. At such times, all you need is hassle-free access to money. If you are a Property owner, a solution is right at hand for financial emergencies in the form of loan against property (LAP).
Reasons to consider a LAP
While there are a lot of options one can think of, LAPs make greater sense for property owners. Firstly, they are cheap. Interest rates on loan against property is available at a cheaper rate of interest (9.5-14%) as compared to personal loans that one may tend to think of first. Personal loan interest rates are in the range of 15-25%. Secondly, LAPs are available for a longer tenure (10-15 years on a case to case basis). This means, you can enjoy the benefits of a lower EMI over a prolonged period, while you continue to live in the property as usual (in case it is a residential property).
Thirdly, and perhaps most importantly from the perspective of Credit building, a LAP is considered a secured loan. This is because of your property as a collateral. Opting for a secured loan has a better impact on your credit profile and has a positive impact on your credit score in the long run. It is important to maintain a good CIBIL score as it is considered as a barometer of your financial health by prospective lenders when they assess your creditworthiness.
What are the requirements for LAP?
Apart from a good credit score, that you are expected to have, you will require the following documents:
- Application form with a valid photo identity
- Proof of your current residence
- Latest salary slips (3 months minimum) and Form 16 in case of salaried employees
- Proof of business and IT returns, balance sheet and P&L statements for last three years in case of professionals
- Bank statements for the last six months
While these are the generic documents that most financial institutions, some banks may ask you to provide additional documents, mainly to prove that the property that you are providing as collateral is not disputed. Further, some lenders may have other checks and balances in place before the approval of a loan against property. Thus, the only drawback of LAPs is that they may take a slightly longer time to approve as compared to personal loans that are approved immediately, especially with lenders doling out online loans once you clear the eligibility criteria.
A word of caution
While you can opt for a LAP when you require one, you are likely to benefit more from a LAP when the property markets are bullish. At such times you are likely to get the LAP at a better rate of interest. However, do bear in mind that you need to make timely repayments on the LAP. If you are unable to make timely repayments on the LAP, the lender is authorised to take possession of the property and conduct an auction on it as and when it deems fit.
Further, inability to make repayments or defaults on repayments will lead to a penalty that you will have to pay over and above the EMI component of the loan. Lastly, but the not the least, your CIBIL score will be impacted negatively in the event of a default. This, in turn, will hamper the future prospects of accessing credit when you require it the most. Therefore it is prudent to assess your capabilities and be assured of making timely repayments before making a LAP application.
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