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Secure a loan with your property

Unlike other loans which are taken for specific purposes, such as home loan or auto loans-these loans can be taken for any purpose.

Pooja Gawde

10 Jun 2008

With real estate becoming the hot avenue for investment, is it but natural to look for a loan product to encash that investment. The answer lies in a loan against property.

Unlike other loans which are taken for specific purposes, such as home loan or auto loans- these loans can be taken for any purpose.

One can even take a personal loan to meet one's needs but the loan amount eligibility is the biggest constraint.

A loan against property is simply put, a multi-purpose secured loan. Compared to a personal loan it has lower interest rates and higher repayment tenures. Interest rates on loans against property range from 12-15.75 per cent and the loan tenure can be up to 15 years. But, those on personal loans are high, 12-25 per cent, the tenure being just five years.

A loan against property can be used for several purposes. While almost all banks offer loans against residential property, some even offer loans against commercial properties.

If one already has a freehold property, one can take a loan against it to fund a new property.

The cost of education is on a rise. Though one can take an education loan for academic pursuits, there are eligibility criteria for such loans-both for the student as well as the guarantor. Based on the value of the property and the requirement, a loan against property can be a short-cut to getting funds for education.

Some banks such as HDFC, HSBC and Deutche Bank also provide loans to the self-employed for expanding their business and meeting its needs. So, if a business man needs some money to purchase a new office or for machinery or any other such business purpose, the answer lies in loan against property.

Credit cards or plastic money has become the popular currency. And with it, has come increased expenditure. For many today, it is vicious cycle-especially given its high interest rates. Instead of shifting to one card and than other through balance transfer, a loan against property could be just the solution. One can take a loan against property to close unsecured dues such as personal loans and credit cards.

All have multiple needs and almost a loan for every need. This often leads to individuals taking multiple loans and the eventuality of not being able to repay all loan installments. Here arises the need for 'debt consolidation'. A loan against property will be the ideal way out to prepay all the ongoing loans and service one loan, paying one single EMI.

Travel is another activity which may require finance. Though personal loans can be used to fund such explorations, a loan against property will be available at a lower cost. However, in the Indian scenario, this option is hardly likely to be exercised, given the Indian attitude to borrowing.

One of the most important occasions is marriage it sure costs heavily. Traditionally also, loans were taken against assets such as property to meet the expenses.

In a nutshell, loan against property is a secured loan against an asset. One can get up to 60 per cent of the cost of property as a loan based on its location. Proof of income is also required by banks to extend such loans.

The banks do not inquire into the utilization of a loan against property though they do insist on a formal undertaking on paper stating that the funds will not be used for speculative purposes.