Did you know that if you own a property in your name, you could avail yourself of a loan against it? Loans against property or property loans are loans availed of against a residential or commercial property or a piece of land that one owns. The property against which the loan has been taken serves as collateral for the loan. In case of loan default, the lender is legally permitted to sell the property for loan recovery.
Over the last few years, the demand for property loans has witnessed a major surge. Let us look at the reasons behind the growing popularity of property loans.
Benefits of a Loan Against Property
1. Low Interest Rates: Since property loans are backed by collateral, lenders see these loans as relatively risk-free loans and therefore, charge a low rate of interest on these loans. The low-interest rate helps keep one’s EMIs affordable and the cost of borrowing the loan low.
2. Long Tenor: Home loan borrowers can choose to repay their loans over a period extending up to 18 to 20 years. The flexibility to choose a short or long repayment tenor based on one’s affordability allows one to repay their loan in a stress-free manner.
3. No End-Use Restrictions: One of the key reasons responsible for this surge in the popularity of loans against property is that borrowers can use the loan money to fulfil any kind of personal or professional needs. This is not a feature that many loans offer.
4. Loan Against Property Balance Transfer: These days, loans against property borrowers can transfer their loan from their current lender to any other lender willing to refinance their loan on better loan terms and conditions. However, loans against balance transfer involve fees and therefore, one should not opt for this facility without proper consideration.
5. Property Loan Tax Benefits: Lastly, property loans come with property loan tax benefits. Smart borrowers can save considerably through the loan against property tax benefits available to them. In our next section, we look at these benefits in detail.
Loan Against Property Tax Benefits
Tax Benefit Under Section 24(b)
Loan against property borrowers who use the availed funds to buy another property can claim tax benefits under Section 24b of the Income Tax Act. One can claim tax benefits up to a maximum of Rs.2 Lakh on the interest component of one’s home loan. Borrowers must know that no tax benefits are available on the principal component of the loan if one uses the money to buy another property.
Tax Benefit Under Section 37(1)
Under Section 37(1) of the Income Tax Act, loans against property borrowers who use the funds availed of for business purposes can claim tax benefits under Section 37(1) of the Income Tax Act. Contrary to popular belief, one can claim these tax benefits on the expenses incurred and not income from their business.
Loans against property tax benefits are available only in these two cases. If one uses the loan money to pay for a child’s education or wedding, they cannot claim any tax benefit on their property loan. Similarly, if one uses the funds availed of to cover medical expenses or undertake travel abroad, they cannot claim tax benefits on the funds availed of.
A loan against property is a popular financing tool available to credit users these days. However, there are two things that borrowers must keep in mind. First, the demand for loans against property has increased significantly in the recent past. Thus, loan against property borrowers must make use of a loan against property eligibility calculator to enhance their chances of loan approval. Further, since property loans involve collateral, one must borrow these loans after careful planning. A loan against property EMI calculator can prove helpful in this regard. Borrowers must always borrow keeping affordability in mind and choose an EMI amount they can comfortably afford.