Synopsis: In today’s blog post, we will discuss how you can solve your debt woes by getting a loan sanctioned against your property.

With easy access to a variety of credit products at one’s fingertips, including buy now pay later (BNPL), credit cards, home loans, and business loans, many borrowers are finding themselves overwhelmed with keeping track of all their payments.

With multiple payments due at different points of time, it can become an onerous task to keep track of all the repayment liabilities. One of the best ways to ease out the repayment woes is to opt for debt consolidation.

But what is debt consolidation, and how does it work? Let’s find out.

Understanding Debt Consolidation

Debt consolidation refers to the act of combining multiple outstanding debts into a single, larger debt, usually with more favorable payoff terms. In other words, it is a tool to convert several debt payments into a single monthly payment at lower interest rates.

To illustrate, one can take out a single loan to pay off other liabilities, such as by combining their student loan and credit card debt payments. The ultimate goal is to get out of high-interest debt cycle payments to multiple lenders, thus securing financial stability.

Types of Loans Applicable for Debt Consolidation

Debt consolidation can primarily be undertaken with two loan types: secured loans and unsecured loans. 

1. Personal/Unsecured Loans

Unsecured loans, including personal loans, can be used to consolidate debt if the borrower has a decent credit score (700+). Sanctioning personal loans require filing extensive paperwork, and the loan process can go on for several months. Moreover, the interest rates can be higher than other loan options since there is no collateral to cover the default risk.

2. Loan Against Property (LAP)/ Secured Loans

Secured loans, such as a loan against property (LAP), are a superior method of consolidating debt when the current repayment obligations add up to a substantial amount. This is because, with a LAP, borrowers can access a sizable loan sanction at comparatively lower rates of interest over a longer repayment tenor.

For instance, a borrower can pay off all his credit card bills, personal loans, and other existing liabilities by securing funds against his property. However, such loans carry the additional risk of losing the underlying collateral in case of a default on loan.

Understanding Loan Against Property

A Loan Against Property is a secured loan that uses pre-owned, entirely constructed, and titled residential and commercial properties as collateral. Since it involves security, lenders are more likely to approve this loan and disburse up to 70% of the property’s market value as a loan.

Factors to Consider Before Getting Started with Debt Consolidation

Before applying for a LAP, borrowers must review their credit scores and credit reports to ensure they meet the eligibility criteria. They must also take stock of their finances to understand their repayment capacity. This will enable them to better negotiate the interest rates and loan tenure with the lender. 

After estimating the required loan amount, borrowers can then apply for a LAP by filling out an application form. The borrowers will additionally be required to submit documents proving their identity and address, as well as their ITR filings and bank details.

But what are the benefits for the borrowers securing a LAP for debt consolidation? Let’s elaborate on them below.

5 Benefits of Using Loan Against Property to Consolidate Your Debt

By securing a LAP, borrowers can consolidate their existing debts into a single loan at relatively lower interest rates and EMIs, along with several other benefits that we list below.

1. High Loan Amount

Depending on the market value of the property, borrowers can get a considerable loan amount through LAP. Due to the loan being backed by a pledged asset, lending institutions will generally lend almost 70-75% of the property value as a loan. 

However, just because a higher amount can be disbursed doesn’t mean that the entire amount should be borrowed. Instead, the emphasis should be on best debt management practices by prudently spending the loaned money.

2. Lower Interest Rates

Being a secured loan, the LAP interest rates are quite low compared to unsecured personal and business loans. Indeed, the higher the property value and the lower the loan amount sanctioned, the lower shall be the interest rate. Consequently, individuals end up paying less on their monthly installments, thus, streamlining their financial burden.

3. Long Tenure

Another benefit of debt consolidation through a LAP is the way it enables the borrowers to spread out their liabilities over a longer duration, thus reducing monthly obligations. However, opting for a long tenure can result in higher cumulative interest payments. So, individuals should prefer to pay off their loans as soon as possible.

4. Lower Monthly Payments

It isn’t unusual for borrowers to incur penalties and additional charges for late payments as they may lose track of their repayment due dates. By undertaking debt consolidation, the numerous EMI payments can be subsumed into a single, lower EMI payment. Therefore, debt consolidation simplifies the repayment schedule and affords better control over finances. 

5. Improved Credit Score

Debt consolidation also enables borrowers to improve their credit scores. This is primarily because they are no longer running behind on multiple repayments, thus minimizing the likelihood of reduced credit scores over late payments. Secondly, by closing other loan accounts on time, and maintaining a spotless repayment record, credit scores can be improved by leaps and bounds. This ensures a better negotiation of loan terms in the future.

Consolidate Your Debt with Protium 

Overall, debt consolidation offers borrowers the best chance of correcting their multiple repayments debacle through debt consolidation, and a LAP is one of the best credit instruments for this purpose. With a LAP sanction, individuals can stay on top of their repayment schedule and avoid being pushed into a debt trap. 

Are you planning to apply for a LAP to consolidate your debt? At Protium, you can get a Loan Against Property at attractive interest rates with flexible repayment options. Just call 8828827800 to know more!