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Face Off: Should I opt for Loan Against Property & How is it better than other loans?
Diary of a financial adviser
15 August, 2022
After the pandemic, many from the young workforce moved to self-employment in the pursuit of sustainability. Many industries such as IT, Food & Beverage, etc., that were pandemic-proof witnessed this burgeoning change. One such client and now a friend, Anjali, too realized her passion for baking and decided to take a permanent hiatus from her successful consulting job.
As markets began to normalize this year, she thought of expanding her baking business from the confines of her home to a brick-and-mortar store just across the street. A quaint store with stained glass windows and alluring glass cabinets – Anjali saw her dreams taking shape.
The last few years, Anjali had saved a substantial amount to make wise investments to secure her future and now she was ready to park all savings in her dream. However, she was disappointed when she ran short of 10 lakhs from the commercials decided for the store.
Anjali needed help. She received unsolicited advice from many and sought financial advice too before she finally turned to professional help. Anjali & I discussed her personal finances and took an account of family assets that we could deploy.
After much discussion, of course including her family, we decided to opt for a Loan Against Property against the ancestral land that Anjali’s family owned in their native city. Since the remaining commercial amount was not large, we worked out business projections and the loan tenure (amongst other things) to ensure her business would not suffer a setback while paying off the loan amount to get her land back.
In my career, I have often witnessed cases where brilliant business ideas don’t see the light of day because investment remains a hurdle. And I have always advised my clients to optimally use their property assets (over any other loan) to make their dream come true and truly grow their worth! |
Just like Bhagyasree, a financial consultant, many experts advise to opt for Loan Against Property as the best option if you are looking for funding options. Loan Against Property (LAP), when compared to other loan products, has a flexible interest rate, no restrictions on end-use, long repayment tenure, and many other benefits attached.
Don’t take us for our word! We have collated information on various loan products such as LAP, Home Loans, Personal Loans, and Gold Loans. Please do take time and go through each loan type carefully and make the choice that suits your requirements the best.
LOAN AGAINST PROPERTY
As we have mentioned earlier too, Loan Against Property is the best option to consider. Let us study the top features that make it worthy of our praise!
LAP Features
- Ownership of Property
- Low-Interest Rate
- Flexible Repayment Tenure
- End Use
When you opt for a Loan Against Property, you will continue to remain the owner of the property pledged as collateral. The ownership is not transferred to the lender, and you can use the property as you need, subject to regular EMI payment.
As Loan Against Property is a secured loan, the interest rates are lower in comparison to the other unsecured loans. With good credit history and stable income levels, borrowers can negotiate a good rate of interest.
Loan Against Property’s defining character is its flexibility, especially when it comes to repayment. This loan type offers long tenures of up to 20 years. Some lenders, such as Godrej Finance, offer tenure of even 25 years.
Usually, a borrower faces no restriction on the end use of the funds sanctioned under Loan Against Property. You can optimally use the funds as long as its for legal and legitimate reasons.
Indicative LAP Eligibility
Salaried Individuals
Self - Employed
Owner of the property
Indian Citizen
Age between 21-60 years
Employed with a private co. or PSU
Minimum income threshold set by Lender
Owner of the property
Indian citizen
Age between 21-60 years
Business vintage of 3 years +
Profits in previous two years
HOME LOANS
Self-explanatory, this loan aids borrowers in fulfilling their homeownership dreams. Since, homeownership equates to personal success, this loan is one of the sought-after loan in our country.
Home Loan Features
Tax Benefits
Once a borrower opts for Home Loan, he/she can claim an income tax deduction on the interest and principal amount. One can deduct stamp duty costs up to INR 1.5 lakh under Section 80C, up to INR 2 lakh under Section 24B, up to INR 2 lakh under Section 80EE and 80EEA, and up to INR 1.5 lakh under Section 80C for principal repayments.
- End Use
Did you know that you could take a home loan for purposes other than just purchasing a new property? You can take a home loan to buy a plot of land for future construction or even for repairs and revamp your home.
- Age between 18-60 years
- Monthly income for salaried borrowers & business stability for self-employed
- CIBIL score of 650 & above
- Minimum income threshold set by Lender
- Existing financial obligations
PERSONAL LOANS
Personal loans, as the name suggests, can be used for all your needs. With personal loans, similar to Loan Against Property, a borrower receives the funding all at once and can repay it over time with fixed monthly payments.
Personal Loan Features
Fast Loan Approval
To receive a personal loan quickly, you must meet the qualifying requirements. A strong credit score is unquestionably advantageous. Disbursal often occurs within 24 hours depending on the bank or lender. It is, therefore, your best option in a crisis.
No Collateral Requirement
You won’t have to provide any collateral if you meet the requirements, and therefore, your assets are kept secure. A personal loan is seen to be the greatest option for obtaining urgent funds.
Loan Amount Flexibility
The amount of a disbursed personal loan depends on a person’s history of on-time payments, monthly income, age, profession, employer reputation, and other similar variables. Personal loans are available from lenders in amounts ranging from Rs. 10,000 to Rs. 40 lakhs.
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Personal loans are also known as ‘All-purpose loans’. You can use the loan to fund anything like buying new furniture, appliances, going on a vacation, etc. excluding speculative or illegal purposes.
Personal Loan Eligibility
Salaried/Self-Employed Individuals
- Indian citizen
- Age between 21-60 years
- Minimum income per month (Varies for metros & non-metros) (varies across lenders)
- Employed with private or public company
- CIBIL score of 650 & above
GOLD LOANS
India is one of the largest users of gold and thus, it makes gold one of the most revered assets which is profitable for anyone owning it.
Gold Loan Features
Fast Processing
Processing is quick since genuine gold is used as collateral for gold loans, making it simple for banks and other lending organizations to offer. As a result, banks/lenders frequently grant these loans in a matter of hours.
Unique Repayment Options
Many gold loans have a special provision that lets you pay back the loan with just the interest. Gold loan interest rate is also attractive. You can pay the principal amount later at the end of the payment tenure.
Anytime Liquidity
Another name for gold loans is “ATL,” or anytime liquidity. This implies that, in contrast to other financing choices, you may apply for a loan in less than 30 minutes without filling out a boatload of paperwork.
End Use
There are absolutely no restrictions on the end use of gold loans. You can fund anything right from a wedding to purchasing jewellery excluding speculative or illegal purpose.
Gold Loan Eligibility
Salaried/Self-Employed Individuals
- Age between 18 - 65 years
- Salaries, self-employed, pensioners or homemakers can opt for a gold loan
- Gold pledged should be of 18k or 22k purity
RECAP
Loan Type
LAP
Home Loan
Personal Loan
Gold Loan
Features
- Ownership of the Property
- Low-Interest rate
- Flexible Repayment Tenure
- Unrestricted end-use
- Dual Interest Rate Option
- Unrestricted End Use
- Tax Benefits
- Fast Loan Approval
- No Collateral Requirement
- Loan Amount Flexibility
- Unrestricted end Use
- Fast Processing
- Unique Repayment Option
- Anytime Liquidity
- Unrestricted end Use
Home Loan Eligibility
Salaried/Self-Employed Individuals
Conclusion
Now, with an idea of all the loans you can take, we suggest you take a good look at Loan Against Property as it uses real estate as security. It also comes with tax benefits on the interest paid. This may be obtained under Section 31 of the Income Tax Act (pertaining to repairs and insurance of machinery, plant, and furniture). Tax benefits on income tax can be obtained up to Rs. 2 lakhs under Section 24 of the IT Act if the loan is taken to build a new home.
Godrej Capital through its subsidiaries, Godrej Housing Finance and Godrej Finance, offers products such as Home Loans, Loans Against Property, Balance Transfers, and many more. To know more about our offering, click here
Disclaimer: The names used in this article are fictitious and are used for representational purposes only.
The contents of this article are for information purposes only. For more details, please refer to the product or service document and/or connect with our customer representative before making any financial decision. The information is subject to update, completion, revision and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its affiliates to any requirements. Godrej Capital or its affiliates 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 mentioned. Please consult your financial advisor before making any financial decision.
