Is Taking Loan Against Property A Good Way To Consolidate The Debt?

"Explore our latest blog on loans against property and learn a way to consolidate your debt with My Mudra a fintech company in India. Get a lap loan in no time."

4 mins read

Published: 2 August 2022

Updated: 20 September 2023

A Loan against Property can offer you a high loan limit, which may be more than sufficient to settle all your existing debts. Lenders can approve a reasonable market value for a property or piece of land. Loans against Property are the most suitable option if you have multiple loans that you can't consolidate.

What is a Loan Against Property?

Loans against property are secured loans where the collateral is pledged against the asset. This asset could be land, a house, or any other commercial premises. As long as the loan amount remains unpaid, the asset remains collateral. Loans against property are useful for both salaried individuals and businesses. Upon approval, the bank issues a credit amount that corresponds to the property's current value.

Why do we need a Loan Against Property?

A loan against property helps you ensure financial stability by reducing interest expenses. Whether you have a residential, commercial property, or industrial this loan can help you avail of funds for your varied needs.

A loan against property can assist you in obtaining funds for several reasons.

  • To fund medical emergency

  • To fund the wedding event

  • To fund the much-awaited vacation

  • To expand your business

  • To fund your child's education

  • Debt consolidation

  • Replenishing working capital

  • Home Renovation

  • Restocking inventory

For loan approval, applicants need to submit property ownership documents and other relevant documents. Once the application has been verified and approved, the sanctioned loan amount is transferred to the applicant's account.

Legal Check of Property

It is a routine process to check the legality of the property before providing a loan against it. It is critical to determine whether the property is legal, whether there are any municipal dues, whether there are any encumbrances on it, whether it is booked under demolition, whether the property papers are legal, whether the registrar has updated the records, and whether the borrower is the owner. 

Valuation of Property

Property valuation is one of the most significant aspects of a Loan against property. The borrower is given the loan based on the value and present income of an existing property. Property valuations are performed by certified valuers who have the knowledge and authority to do so.

Features of Loan Against Property

Saving on Interest Rates

Paying multiple interest rates is one of the most challenging aspects of having multiple loans. The amount of money you pay can also be high. The interest rate on a property loan is generally relatively low. For the loan to be successful, you must have a fixed rate and a specified repayment period

Low Monthly Payments

The number of payments you make and the number of creditors on your list can make it easy to lose track of your due dates. If you pay late, you will be charged an additional fee. Additionally, you may see a negative impact on your credit score. It will be easier to keep track of an exhaustive inventory if you can pay off multiple loans using a single payment from a property mortgage loan

Higher Loan Limit

The amount of the loan on the property is directly influenced by the property's mortgage. In some cases, higher loan approvals may be available if the present value of your property or land is considerable. In essence, this is helpful if you need to consolidate or pay off multiple high-rate loans.

Although a loan against property can help finance many debts, it is not a magical solution. You can use it responsibly to stay on top of your finances, but if used irresponsibly, you may find yourself in deeper debt. Therefore, it is very helpful to have sound and responsible financial habits.

Long tenure

Flexible loan terms are something you should look for when choosing a lender. Tenure of up to 20 years is possible. Nevertheless, it is always a wise idea to pay them off as soon as possible.

Important matters related to a Loan Against Property

  • A Loan against property can be obtained from properties owned jointly within or outside the family. Joint ownership of the loan will also be made between the property owners, and both will sign the loan documents.

  • A lot of people hide their financials no matter what and show a lower income to avoid paying taxes. However, this reduces the borrower's value for loan purposes.

  • It does not matter whether you own property or not. The loan against property can be applied to vacant properties or properties rented out.

  • The documents submitted by the borrower must be double-checked to ensure that there are no errors in the submission of the documents.

  • There are several documents and detailed formats that borrowers must sign before they can borrow money. Before signing, the borrower must understand all terms and conditions.

  • Filing your income tax returns on time and showing an adequate net worth will help you obtain a loan.

  • The borrower will keep the original property documents until the loan is repaid. Be sure to keep a photocopy of the property documents with you and ask the lender for a signed receipt confirming the documents have been submitted.

  • You should not give anyone your original property documents until your loan has been approved. You can use a photocopy of property documents until the sanction letter is given to you and the final documentation is completed.

Also read: How to get Loan Against Property

android apple