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Why a loan against property is better than a personal loan :
You need a loan urgently. A personal loan immediately comes
to mind. But the interest rates charged by the bank for the personal loan are
quite high. (The interest rates could be as high as 14-22%)You don’t want to be paying so much in interest.
The personal
loan is an unsecured loan (With no collateral) and so banks charge a high
interest rate.You suddenly remember your house and Yes….you can avail a
loan against your property.
What is a loan against
property?
The bank allows you to avail a loan against your property (or
your house) as this is a secured loan (Your house/property is the collateral).The bank has a due diligence process (The bank appraises your
house/property and assesses its value).You are sanctioned a loan up to 60-70%
of the value of your property.
The bank charges you an interest of around 12-16% for a loan
against property .This is much less than the interest rates charged for a
personal loan.The tenure of the loan against property is around 10 years.
The bank allows you to avail a loan against your property (or
your house) as this is a secured loan (Your house/property is the collateral).The bank has a due diligence process (The bank appraises your
house/property and assesses its value).You are sanctioned a loan up to 60-70%
of the value of your property.
The bank charges you an interest of around 12-16% for a loan
against property .This is much less than the interest rates charged for a
personal loan.The tenure of the loan against property is around 10 years.
Benefits of a loan against property vs personal loan:
Loan against property
Personal loan
Interest rate
12-16%
14-22%
Tenure
1-10 Years
1-5 Years
Processing fee
1.0-1.5% of the loan
amount
1.5-2.0% of the loan amount
Since the bank has collateral (your house/property) it
sanctions your loan against property easily and very fast. Banks tend to be
liberal when sanctioning your loan against property compared to a personal
loan.
You can avail a loan against property if:
You are starting a
business:
You need money to start a business. You definitely should
consider a loan against property. The interest rates charged by the bank are
lower than most types of loans baring a home loan.
A loan against property helps you to unlock the value of your
property. You already own the property (The title of the property is clear and
marketable).Your property/house appreciates (increases in value over time).You
could put this property to use (increase in its value) by getting a higher
quantum of loan sanctioned against it.
If your property is worth INR 50 Lakhs in the Year 2010 you
get 60% of its value as a loan against it which is INR 30 Lakhs.The same property in the Year 2012 might be worth 70 Lakhs
and you get 60% of its value as a loan which is INR 42 Lakhs.
The quantum of your loan increases as the value of your
property increases with time.
You get a larger amount
of money than a personal loan:
The value of a property/house is high in India. Even if you
get only 60-70% of the value of your property this is quite an amount.The bank is happy to lend you this loan as it is secured
against your house (collateral).
A personal loan is unsecured (no collateral) and you can
avail a much lower amount than a loan against property.With so many benefits over a personal loan you definitely
need to take a good look at the loan against property.
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