Taking a loan against property (LAP) is often a prudent financial decision. It is availed by individuals and businesses who need a substantial amount of funds for various purposes. Be it for business expansion, education, medical expenses, or debt consolidation, LAP provides a viable option for securing a loan with favourable interest rates.
However, just like any other loan, it’s essential to have a well-planned strategy to repay loan against property to ensure financial stability and avoid potential risks. In this comprehensive guide, we will delve into the key aspects of repaying a loan against property and offer valuable insights to make the process smoother and more efficient.
Helpful tips to repay loan against property efficiently
Here is a list of seven helpful tips to repay loan against property efficiently:
- Calculating EMI and loan tenure
Before taking a loan against property, it is critical to understand the Equated Monthly Instalments (EMI) and the loan tenure. There are several online loans against property EMI calculators available that help to estimate the monthly repayments based on the loan amount, interest rate, and tenure. Adjusting the loan tenure can affect the EMI, allowing the borrower to choose a repayment plan that aligns with his/her financial capabilities.
- Planning a repayment strategy
Creating a robust repayment strategy is essential to stay on track with loan repayments. The borrower needs to categorise his/her income sources, expenses, and financial goals to allocate a portion of his/her monthly income for EMI payments to avoid the risk of defaulting on the EMI. Additionally, borrowers should consider prepaying the loan whenever possible to reduce the overall interest burden and shorten the loan tenure.
- Opting for partial prepayments
One of the significant advantages of LAP is the flexibility it provides for partial prepayments. Whenever a borrower has surplus funds, they should consider using it to make partial prepayments towards the outstanding loan amount. It can significantly reduce the principal amount and the total interest payable, leading to substantial savings in the long run.
- Avoid missing EMIs
Missing or delaying EMI payments can have serious consequences, such as late payment penalties, negatively impacting the borrowers’ credit score, and the risk of losing the mortgaged property in extreme cases. Setting up automatic reminders and standing instructions ensures timely payments and safeguards financial reputation.
- Using windfall gains wisely
Windfall gains, such as bonuses, tax refunds, or unexpected monetary gifts, can be a boon to repay loan against property faster. Instead of spending these windfalls on non-essential items, consider utilising them to make lump-sum prepayments on the loan. This will significantly reduce the outstanding principal and help the borrower close the loan earlier than expected.
- Balancing loan repayment with other financial goals
It’s equally important for borrowers to balance financial goals with LAP repayment. Investing in long-term savings and retirement plans simultaneously will help them to secure their financial future. A well-balanced approach will ensure that they are not compromising on essential aspects of their financial well-being because of the loan repayment.
- Refinancing and balance transfer
There are certain situations where borrowers find more favourable interest rates or better loan terms from another lender. In such cases, they can consider refinancing or opting for a balance transfer. However, it is essential to thoroughly analyse the associated costs, processing fees, and potential savings before making such a decision.
Tax benefits of loan against property
LAP offers attractive tax advantages which makes it a compelling option for borrowers. Understanding and maximising these loan against property tax benefits can significantly enhance the overall financial advantages:
- Tax benefit under Section 24(b)
Salaried individuals can take advantage of income tax benefits under section 24(b) when opting for a Loan Against Property (LAP) to fund the purchase of a new residential house. According to the regulations, borrowers are eligible for tax deductions of up to Rs.2 lakh on the interest payments made towards the LAP.
- Tax benefit under Section 37(1)
Section 37(1) of the Income Tax Act offers tax deductions for individuals and businesses who avail a loan against property (LAP) specifically for business-related purposes. Under this section, borrowers can claim tax benefits on various expenses incurred during the LAP process, including interest charges, processing fees, and documentation fees, filing them as business expenditures.
- Scenarios where the tax exemption is not allowed
If the loan amount is used to transform the mortgaged property or any personal purpose such as education, marriage, travel or medical bills, there is no tax exemption in such cases. Also, there are no tax benefits for LAP under Section 80C of the Income Tax Act.
Borrowers should remember that timely repayments not only reduce their financial burden but also enhance their creditworthiness, making them eligible for better loan opportunities in the future. Financial institutions even extend pre-approved loan offers to existing creditworthy customers. These offers are available on various financial products like home loans and loans against property. These offers significantly speed up the loan approval process. Borrowers need to provide just a few basic details like name and phone number to check their pre-approved offers.
To repay a loan against property borrowers need to carefully plan their finances and require discipline, and regular monitoring. With a well-structured strategy in place, they can navigate through the repayment process more efficiently and achieve their financial goals. They can use these above mentioned tips while making the LAP repayment and ensure a secure financial future.
