It can be stressful to make big investments with life savings, right? That’s exactly why the loan market thrives. There are many ways to take a loan from a bank or financial institution, but a loan against property can often be the easiest option for many reasons. A loan against property is a secured loan you can receive by using your home or commercial property as collateral.
Traditionally known as a mortgage loan, LAP is particularly popular because of its reasonable LAP interest rate. The approved amount is usually a percentage of the property’s market value, and since the loan is secured, it results in cheaper interest rates. The approval process is also streamlined and simple these days, so one can expect a faster loan disbursal.
So now you have a LAP and can meet your financial responsibilities, but what comes next? How do you go through the repayment process? Well, you can always try the prepay option! Prepay is the situation when you pay off your loan amount before the due date. Not sure what prepay is and how to use it? Keep reading and find out all about finance loan prepay.
4 Easy Methods to Pay in Advance Your Loan Against Property
Making prepayment for your loan is something you should think about if you want to lower your total debt load and interest amount. Pay off your LAP amount entirely or in part as soon as your financial situation allows it. However, remember, not all financial institutions offer the same terms for loan prepay, so check those terms before you take out the loan!
1. Make Part Prepayments
Making periodic partial prepayments is one of the best ways to lower the total interest paid during the loan duration. The LAP interest rate you pay for the loan is based on the remaining loan amount, and with regular prepays, you considerably decrease the remaining amount. The interest on your future EMIs can be reduced by making even minor prepayments on your loan!
2. Loan Refinancing
If you wish to pay back your loan against property with a prepay option, you can also look into loan refinancing, which means you transfer your current loan to a new lender with better terms and conditions. You might be able to get a prepay option without a fine with another financial institution than the one you took the loan from. With refinancing, you can also get shorter loan terms and a cheaper interest rate, both of which help you pay back the loan more quickly and result in significant interest payment savings. But before you refinance, make sure you weigh the advantages and disadvantages and take into account things like your credit score, processing fees, etc.
3. Take Advantage of Sudden Financial Gains
If you suddenly make a substantial gain from your business or inherit a lot of money, you should take the chance to pay off your entire loan. This approach is especially useful as it eases the financial burden without affecting your usual spending plan! To prevent any penalties, you must make sure that this payment is in line with the conditions of your loan arrangement with your bank.
4. Increase the EMI
Increase monthly EMI amount whenever possible because this way, you finish paying off your loan earlier than the final date, and also lower the amount of interest paid. For instance, you can easily shorten the duration of your loan by a couple of years with only a five per cent increase in your EMI. Regularly assess your financial situation and modify your EMIs as necessary, particularly if you have received a raise in pay or a strong return from the share market.
Benefits of a Loan Against Property
The following are the significant advantages of a loan against property:
- Competitive Interest Rate
Since a loan against property is automatically guaranteed by collateral, the lender is completely assured that they will not suffer losses in the event of repayment default or non-payment. For that reason, lenders provide loans with a LAP interest rate that is more reasonable in comparison to other loans. This low interest rate lightens the burden of making high monthly EMI payments and guarantees you receive the most advantages from your loan.
- Higher Loan Amount
LAPs often have higher loan amounts than unsecured loans because the repayment is already secured, and lenders feel assured in their ability to provide a larger loan. Those who want to borrow significant amounts of money can profit from the LAP without paying too much interest to the lender.
- Tax Benefit
The tax benefit you receive from a loan against property is an additional advantage! All salaried employees are eligible for tax reduction on interest paid for a loan secured by property, and as a result, you may deduct interest payments from your taxable income to increase savings.
- Flexible Repayment Time
In contrast to unsecured loans, which have a short payback period of five to seven years, secured loans, such as LAP, have repayment windows that can extend up to fifteen years. With a longer payback period, the borrower gets more time to organise his/her finances and has the option to pay a smaller monthly EMI for loan repayment.
- A Loan for Multiple Purposes
How you use the money will not be set by the lender when you go for LAP loans. It can be used for a variety of things, such as funding business ventures and expansion plans. You can even buy a new asset or piece of real estate with this loan as a means of smart investment!
The Final Word
A loan against property is a type of secured finance loan offered by all banks and financial institutions. Large-scale costs, like investments and business expansions, are typically the reasons people take out this loan; however, how you spend the money will not be dictated by the lender.
But keep in mind that the lender has the right to seize and auction the property to cover their losses if the borrower is unable to repay the debt. As a result, it’s critical to ensure that, as a borrower, you can return the loan on time. That is why prepaying your LAP amount is a fantastic option if you are worried about this scenario. Use the prepay methods mentioned in this article and take advantage of the benefits of a loan against property without stress.
