A Loan Against Property (LAP) agreement represents a significant financial commitment with long-term implications. While borrowers may have initially accepted certain terms at origination, financial markets evolve and interest rate environments change over time. It is therefore prudent for borrowers to periodically evaluate whether their existing LAP terms remain optimal or if refinancing could yield substantial benefits.
For borrowers with an existing LAP at relatively high interest rates, refinancing or transferring the loan balance to another financial institution could offer multiple strategic advantages. This article explores the key benefits of LAP balance transfer to help borrowers make informed decisions aligned with their financial objectives.
1. Reduce Your Interest Burden
One of the primary loan against property balance transfer benefits is that you can likely swap your current high-interest loan for one with a lower interest loan against property loan. Financial institutions routinely offer promotional rates to attract new customers who are transferring their loans. This directly reduces your monthly interest payments, putting more cash in your hands.
For instance, if you have a ₹50 lakh LAP at 14% interest and refinance it to 12% interest, you would save over ₹1.5 lakh in interest annually. This money can be utilised for other goals. The larger the loan amount, the greater the potential savings.
2. Gain Access to Your Property's Appreciated Value
Over time, your property's valuation likely increases. An LAP balance transfer may also allow you to apply for a top-up loan if your property's value has increased and you meet the lender’s eligibility criteria. This means that you can access additional funds without selling your property.
This extra financing can be used to fund a business expansion, a child’s overseas education, wedding expenses and more. There are no restrictions on loan usage like other products.
3. Align Loan Tenure to Needs
When you initially availed your LAP, you would have chosen a tenure to suit your repayment capability back then. But now, your financial situation may have changed. Refinancing gives you the flexibility to realign your loan tenure to match your current needs.
For instance, if your earnings have increased, you can go for a shorter tenure to save on total interest paid. Or you could reduce your EMI burden by increasing tenure. Lenders allow tenures up to 30 years on an LAP, so you have flexibility. Do ensure your age at loan maturity aligns with norms.
4. Consolidate Multiple Loans
People often take multiple loans over time for various needs. An LAP balance transfer allows you to consolidate different loans under one roof. You can combine your home loan, car loan, personal loan and credit card dues into a single LAP.
This simplifies repayment with just one equated monthly instalment (EMI) to track every month. Plus, you can likely get a lower interest rate as LAPs are secured loans. Just ensure your total repayment tenure does not extend too long. Consolidate loans only if it makes monetary sense after crunching the numbers.
5. Access Better Product Features
An existing LAP may lack some borrower-friendly attributes that are now available. Transferring your LAP can give you access to newer features offered by other lenders like online account management, flexible EMI options, or faster loan processing.
For instance, newer LAPs may offer online account access, loyalty rewards points, Flexi EMI options, faster disbursals, and foreclosure without penalties. Evaluate if such features add value financially or via convenience.
6. Avail Tax Benefits
The income tax benefits of an LAP are tremendous. The principal and interest amount paid are eligible for tax deduction under Section 24. This directly reduces your annual tax liability and increases your take-home income.
Additionally, GST does not apply to loans against property, making them more economical than other financing tools like personal loans, which attract 18% GST. This benefit will be multiplied if LAP refinancing helps cut interest costs.
7. Protect Credit Score
A smart way to refinance your LAP is to apply for a new loan while keeping the existing one active. Once the fresh disbursal happens, use it to close your old loan. This ensures there are no blips or gaps in your credit repayment history, protecting your credit score.
Some institutions even offer special incentives to existing borrowers looking to refinance loan against property. Check if such an option exists with your lender before initiating the transfer process.
Summing Up
Refinancing or transferring your LAP to a new lender offers financial and practical benefits. While logic suggests that reducing interest costs can unlock significant savings, consider secondary aspects like tenure flexibility, access to property value gains, and improved product features when deciding. Transferring your existing Loan Against Property (LAP) to a trusted provider like Shriram Finance can help you reduce your interest burden, extend or adjust your repayment tenure, and access additional funds as your financial needs evolve. Make an informed call by comparing options across lenders to identify the optimal refinancing choice for your loan against property.
