The borrowers face the risk of losing the ownership over the mortgaged property in case of defaults on loan against property. If the borrower is unable to repay the loan, the bank will have control over the property pledged as the collateral. The lender can auction or sell the property to recover its unpaid dues.
Secured loans are comparatively approved easily compared to unsecured loans. As borrowers offer some assets as mortgage or collateral in case of secured loans the lenders expedite the process of approving such loans. Loan against property, as the name indicates, is one of the most common secured loans in which borrowers get the money by mortgaging their property. The borrowers can get loans against residential and commercial properties as well as even a piece of land. However, the property should be owned by the borrower.
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There are several pros and cons associated with loans against property and a borrower should consider all the factors before availing such a loan.
Take a look at what are the benefits and the risks of this option and whether one should opt for it.
How to apply for a loan against property?
Loan against property can be taken by both businesses as well as individuals. Most of the banks and NBFCs offer loans up to 70 to 80 per cent of the current value of the property mortgaged. Borrowers need to be sure that the title of the property clearly states their name. The property offered as mortgage should only be in the name of the borrower.
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What are the risks involved in taking a loan against property?
Valuation problems: There is no uniform valuation norm for the property against which a loan is availed. Lenders will evaluate the collateral on the basis of different criteria. The banks may have their individual valuation rules.
Bank has control over property: If the borrower is unable to repay the loan, the bank will have control over the property pledged as the collateral. The lender can either restructure the loan to give the borrower more time for repayment. Alternatively, it can auction or sell the property to recover its dues.
Lengthy approval process: The process of getting a loan approved could be time consuming. In case of a financial emergency, it might not be the best option to choose.
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Are there some benefits of taking a loan against property?
Long repayment tenure: Loan against property offers long repayment tenures that can go up to 15 years.
Lower interest rates: Loan against property has lower interest rate in comparison to other unsecured products like personal loans.
Lower EMIs: Since the tenure of loan against property is longer, the equated monthly instalments (EMI) also get reduced. This results in a reduced burden of repayment.
Large loan amount: Loan against property can provide a more fund compared to a personal loan since the money is given on the basis of the current value for the collateral. It is a good option when the borrower needs a large loan amount for certain purposes such as business expansion.
If you need a large amount of money and are able to handle the repayment option, loan against property can be a viable choice. The main thing to keep in mind is that you manage to stay up-to-date with the EMI payments.
