What is a loan against property (LAP)? It is as its name suggests- a loan taken against a self-owned property to fulfil financial requirements. A property loan is a secured loan. The property papers are kept as collateral with the fund-provider until the loan is completely repaid. The greatest benefit of such a loan is that the funds you obtain can be used for any purpose, such as wedding, education, travel, home renovation, business, medical treatment, etc.
The tenure of a property loan is important to understand, as it affects the overall cost of the loan. Let us understand the factors that influence the tenure for a loan against property.
Your age plays an important role in deciding the EMI for a property loan. In case you are in 20s or 30s, there are chances of securing a higher tenure loan, than when you are nearing retirement age`. In the latter case, you shall be approved of a shorter tenure. Most of the NBFCs/banks hesitate in offering a loan to a person who is around the retirement age.
To understand how tenure of a loan impacts the cost of loan, you can use an online EMI calculator. That being said, a shorter tenure will attract a higher EMI and vice-versa.
- Norms of Financial Institutions and Bank
Not every bank and NBFC will have similar terms and conditions for property loans, in terms of loan amount, tenure, rates, fees, charges, and more. For instance, the tenure for State Bank of India loan against property is up to 15 years, and that of Bajaj Finserv is up to 20 years. Thus, the norms of banks and NBFCs also influence the LAP tenure.
- Loan Amount
The tenure of property loan is also influenced by the loan amount you wish to obtain. A higher tenure may be applied for a bigger loan amount, and vice versa. Financial institutions and banks usually provide tenure between 5 years and 15 years, and a shorter tenure is preferably allotted for a lower loan amount. However, if the banks finds that your income does not suffices to fulfil the repayment requirement on a shorter tenure, then a longer tenure can be offered.
As glimpsed above, another factor that impacts the tenure of LAP is your net income and expense. The bank will approve a period for loan depending on your existing financial liability, income, and repayment capacity. The debt to income ratio should be such that you must have at least 40-50% disposable income to get a desirable tenure for the loan.
If you are left with lower amount of disposable income during a month, then a longer tenure will be sanctioned so that you can manage the EMI comfortably. It is ideal to choose tenure where you can pay the EMI without inviting any financial burden such as cutting down on income to fulfil the basic needs and expenses.
- Loan against Property Interest Rates
The interest rate of a loan against property directly influences the EMI amount, which affects the tenure. The total cost of the loan will be higher if the interest rates are higher, and vice versa. Thus, you must compare the rate of interest across top providers of LAP to select the one that suits your needs for the loan amount, tenure, and other facilities.
The above-given factors are crucial to understand and compare when opting for a property loan. These factors not only decide the loan tenure, but affect the loan cost as well. Thus, you must study these conditions in detail when choosing a loan provider.