The Reserve Bank of India (RBI) always keeps a tight check on
the loan against property segment of the lending business. And rightly so. It
is the reckless borrowing and lending in this segment that happened in the US
that brought the world to the brink of economic disaster. However, in India,
the case is different. A 30%-35% margin requirement ensures that lenders are
safe and prevents asset bubbles from brewing. It is with such policies that a
loan against property becomes an asset for the responsible borrower. Here are
the reasons why this is so.
Benefits of Loan against Property
It is cheaper: A secured loan is always cheaper than an
unsecured one. The obvious reason is that the lender has recourse to tangible property
if you default. This is why loan against property can save you a lot of money
in interest costs.
A 2%-3% drop in the interest rates can save you close to
Rs5,000/- to Rs7,000/- per month (assuming a principal amount of Rs50 lakhs).
You could use these lower interest rates to get rid of some of the expensive
overdraft facilities or factoring for your business or for personal reasons
like a marriage in the family.
It is versatile: A loan against property is available for
almost any purpose that you may desire funds for. The lender will not ask too
many questions about the usage of funds. This also reduces the amount of
paperwork required by significantly. You may have to declare your intention
about using the funds, but it is neither mandatory nor legally binding. In most
cases, it is just for the lender's knowledge, a mere formality.
It is easily available: When a lender has a tangible security
backing their loans, they have very little to worry about. No wonder a loan
against property is available at express speed. It usually takes less than a
week from your first point of contact to having the funds in your loan account.
Professional lenders may do it over a couple of nights.
However, here is a word of caution for prospective borrowers.
A Property Loan is a
good way to borrow at lower interests if you are in control of your finances,
i.e., you are sure that you will be able to make the payments even in the worst
conditions. Failure to make these payments can have very unpleasant
consequences. Just like all financial instruments, it is a tool, use it wisely!]
[Source: http://www.sooperarticles.com/finance-articles/loans-articles/3-reasons-why-loan-against-property-beneficial-578802.html?]
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