When you are using your property as collateral, you need to think twice before concluding. There can be multiple cases wherein you feel the need to take a loan for personal use or for making an immediate purchase and property-based loans may look like a solution. Here are a few tips for you to consider before you take the leap.
The Interest Rate
The interest rate is a factor that you can’t overlook. Mostly personal loans or other forms of loans for personal use come at a higher rate going up to 20%. In the case of property loan the interest, it can go up to 15%. This is why many prefer to avail this type of loan.
Are You Self-employed Or An Employee At Another Concern?
This is a parameter that needs to consider among some of the most fundamental factors that would influence your decision. If you are self-employed, get a brief idea of how much definite cash flow you will have during the entire extent of your loan. Why? Because failing to pay back would be of extreme concern if you are availing loan against your only residential property.
If you are employed in the private sector, you need to consider the chances of leaving the company during
How Will Taxation Work In This Case?
This depends on the property and purpose of a property loan. For example, if you are a business person availing loan against property for the betterment of your business, there are tax cuts available for you. This is not the case for individuals without business affairs. If you are availing a loan against property for buying real estate or adding more structure to the same property, you have no tax benefits here.
Is It A Jointly Owned Property?
The property that you are availing loan against is of crucial importance here. If the property is jointly owned, for example, your husband or wife and yourself, both the owners will become a joint applicant in that case.
This means that two of the owner’s income, tax returns, credit score, and bank statements will be parameters to sanction the loan. This also means that either the owners or all owners will be responsible for paying off the loan. In case of the demise of one of the owners during the loan tenure, the sole responsibility for pay-off will be bestowed on the rest of the owners.
How Quickly Do You Want To Pay Off The Loan?
Okay, just like a personal loan, property loans can be used to personal end-uses like paying for a marriage ceremony. This means that most personal end-uses of loans can also be sectioned. If you are willing to take a loan against property, think about the property loan interest rate and compare if you can avail a personal loan instead and pay it off quickly.
For example, if you take a personal loan of 1 lakh at 20% interest per annum for 3 years, the total amount payable turns out to be around 1,60,000 INR*. In contrast, if you take a property loan for 6 years at 15% per annum for the same amount, the net payable amount turns out to be around 1,90,000 INR*. Consider the time, pre-payment options, and minimum period to pay off your loan before coming to a decision.
At the end of the day, no matter what the end-use is, consider a constant cash flow option that will help pay off your debt. This will clear the entire spectrum of doubt you have over availing a property loan.