By Rajiv Raj, Founder & Director, Creditvidya.com |May 17, 2013, 12.51 PM IST| Moneycontrol.com|
Loan against property is better for making your son’s / daughter wedding a grand occasion. Many times people borrow money using personal loans to fund their weddings and end up paying rate of interest in the range of 18 percent to 24 percent if not more.
Come May and the wedding season begins. On the one hand, there would be families that would be fixing dates for weddings, on the other hand, there would be families that have already decided the fate of their sons and daughters. In either case, there is an element of cautiousness about arranging funds and meeting all requirements of the wedding. While a few fortunate ones would not be affected or tossed around by such uncertainties, there is a vast majority of increasing middle class, which on most occasions are short of funds. For these who are short of funds and yet are unwilling to compromise on the requirements and appearance of wedding, there is a way out.
It is a loan against property. Loan against property is a better way to borrow for your son/daughter’s wedding as compared to taking personal loan. Many times people borrow money using personal loans to fund their weddings and end up paying rate of interest in the range of 18 percent to 24 percent if not more. Unfortunately, these loans need to be paid in the period of one to three years. So, if you have borrowed too much money it is cumbersome to pay back.
Loan against property comes at a relatively low rate of interest. The rate of interest typically stands between 12 percent and 14 percent and the term of the loans can be as long as 10 years. Bank offers loan equivalent to around 50 percent of the value of the house. If value of your house is Rs 1 crore, you may get up to Rs 50 lakh loan. To put it simply, you can put up a large sum at a low rate of interest and for a longer tenure. This is far better than opting for a loan by using gold as collateral. Though many people are aware of loan against gold, it does not seem feasible and lucrative since gold ornaments are amply worn and used in wedding season. And hence gold cannot be offered to bank as collateral. In such circumstances, it makes sense to take a loan against your property – your home.
In a loan against property case, typically, the bank inspects the property and conducts the due diligence before approving the loan. The bank ascertains the value of the property, the ownership of the property and the residual life of the property. Depending on the repayment capacity of the borrower, the bank approves the loan after taking into account these and other factors pertaining to the property. All this process takes some time. It can take time from a fortnight to one month. So, you have to start early. Banks also charge a fixed processing fee to the extent of 0.5 percent to 1 percent for the process.
Banks can also offer you a top up loan against your home, which is mortgaged with them. So if you have a home loan running with the bank for some time, you may approach the bank for additional loan – the top-up loan. Bank will approve you some loan if your salary can service such incremental loan along with home loan, if the property value too has gone up.
All these things look tempting and workable. But, do not forget a couple of things. First, you need a good CIBIL credit score to get a loan against property. And second – after getting such a loan repay it on time. This will enhance your credit worthiness for banks.
Source : http://goo.gl/D0PlD
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