When you offer a property you own (whether residential or commercial) as collateral to take a loan, it is known as a Loan against Property. It is a popular type of loan to take as it is cheaper than a personal loan and offers a larger loan amount over a longer repayment period. It is similar to a Personal loan in that you can use the loan amount for any purpose – like debt consolidation, business expansion, education expenses, family or medical emergency. 

Benefits of a Loan against Property compared to a Personal Loan

1. Lower Interest Rate: Personal Loans are among the most expensive consumer loans to take as they are unsecured by any collateral.  A loan against property is a secured loan and the rates are much lower. Generally, interest rates on a loan against property can range from 12-16% while interest rates on personal loans can range from 15-22%. Of course, each lender has its own rates depending on your credit profile and other internal policy regulations.

2. you can get a loan for up to 60 % of the market value of the property which can translate into a sizeable amount of funds. This is far larger than the amount you would get for a personal loan - and it comes at a cheaper cost.

3. Longer repayment period: Since it is a secured loan, lenders have a lower lending risk and are willing to grant a longer repayment schedule. The tenure for a loan against property can stretch up to 15 years while a personal loan has a tenure of only 1-5 years.

4. Lower EMIs: Because of the longer loan period, the monthly EMI is also smaller, meaning it is a lighter repayment burden over the entire tenure of the loan when compared to a similar sized personal loan.

Other benefits of taking a Loan against Property

a. Simpler documentation process – Since most the paperwork is done at the time of buying the property, the documentation required for a loan against property is simple. All it requires is a clean title deed with no encumbrances.

b. Leverages an existing asset – Like a gold loan, a loan against property allows you to leverage an asset that you already own. The property could be residential (house, apartment or plot of land), commercial or industrial.

c. End-use flexibility – A Loan against Property gives you the freedom to spend the loan amount for any purpose you wish, much like a personal loan or a gold loan. Because of the larger loan size and the longer tenure, a loan against property is ideal for a substantial long-term expense.