Short Tenure vs. Long Loan Against Property Tenure - Which Is Better?

A Loan Against Property is a secured loan under which a borrower pledges their property - residential or commercial - as collateral in return for a loan. Loans against property are one of the quickest, safest and most convenient ways to arrange money, especially in times of financial crisis. However, if you are planning to take a Loan Against Property, there are a few things you must keep in mind.

Borrow only what you will be able to easily repay. Loans against property involve collateral and loan default can lead to a lender selling your property for loan recovery. Therefore, never borrow more than you can repay.

Talk to as many lenders as you can and negotiate for a low-interest rate. In the end, go with the lender offering you the lowest interest rate as well as favourable loan terms and conditions. Researching options will take some time but it will be worth the effort in the end.

Make sure to choose the right loan against the property Tenure. While the maximum Loan Against Property loan Tenure can stretch up to 18 years, borrowers are advised to keep their Tenure short and their EMIs affordable. Why? Read on.

Short Tenure vs. Long Loan Against Property Tenure: Which Is Better?

The right answer to this question would depend on your income profile. If you are earning well and do not have any other loans, it's better to opt for a short Tenure and become debt-free as soon as possible. However, if you have other monthly obligations and are not left with a lot of money to spare at the end of each month, it's best to opt for a long Tenure and keep your EMIs as affordable as possible.

The question is: how does one decide the best Loan Against Property Tenure for them? This next section shares tips that will help you choose the right loan Tenure for you.

Handy Tips to Help You Decide the Right Loan Tenure for You

First Decide What You Can Afford to Pay Based on Your Monthly Income and Choose a Loan Tenure Accordingly

Figuring out the right Tenure becomes easy when you know what you can easily repay. So, before taking a Loan Against Property, sit down and make a list of your fixed monthly expenses. This should include your existing liabilities. Once you have done that, figure out how much money you are left with each month and what EMI amount you can afford to pay each month without straining your finances.

Once you know the EMIs you can afford and the loan amount you want, use a Loan Against Property Calculator to figure out the right Tenure for you. The EMI calculator is quite easy to use. All one needs to do is enter three values: loan amount, rate of interest and Tenure. In this case, you must keep changing the Tenure until you reach a loan amount and EMI combination that works for you.

Decide Your Tenure Based on the Loan Amount You Need

One of the biggest benefits of a Loan Against Property is that it gives borrowers immediate access to a substantial amount of money. With the right property and right profile, borrowers can avail of up to Rs.10 Crore under loans against property. However, just because you are being offered Rs.10 Crore does not mean you should take such a high-value loan. Borrowers should always borrow only what they need.

If you need access to a small amount of money, say Rs.20 Lakh, it's best to keep your Tenure short and repay the loan as soon as possible. However, if you plan to borrow a substantial amount under a Loan Against Property, it's best to opt for a long Tenure so that your EMIs are affordable and repaying the loan doesn't become burdensome ever.

Decide Your Loan Tenure Based on the Interest Rate You Have Been Offered

The interest rate on a Loan Against Property is a crucial factor that determines how easy or difficult it will be for you to repay the loan and the interest rate you get offered will depend on various factors, such as your CIBIL score, income profile, income and job stability, the value of the property pledged as collateral, etc.

If you get offered a low-interest rate, it would be wise to keep your Loan Against Property Tenure short and repay the loan as soon as comfortably possible for you. If you have been offered a high-interest rate, it's best to keep your loan Tenure long and your EMIs affordable.

Decide After Proper Financial Planning

Individuals borrowers who avail of loans against the property on floating interest rates can prepay or foreclose their loan at no additional charges. Thus, if you are planning to take a Loan Against Property, take a loan on floating interest rates and go for a long Tenure. Then, whenever you run into some extra money through a bonus payment or salary hike, make part prepayments and try to close the loan as early as possible. This way, you will be able to keep your EMIs affordable and will also be able to repay the loan as soon as possible.

Final Words

Loans against property are big-ticket loans involving collateral. Therefore, borrowers must avail of these loans after careful planning. You must choose the right Tenure for you. Choosing the right Tenure will not only make the loan affordable for you but also ensure the safety of the property you have pledged as security.