Savings are crucial in everyone’s lives to meet their family responsibilities and unanticipated occasions. However, depending just on the savings is not sufficient to cover your child’s higher education. In case you want to send your kid abroad, it requires considerable and careful planning. For abroad education, besides tuition fees, you even need to plan for additional expenditures like food, boarding and monthly expenditures. The savings size will not be adequate to meet the financial needs of your higher education. The requirement for additional funds in a foreign country may be arranged with an educational loan. However, in a few scenarios, educational loans become tough to procure. The major reasons are –
∙ Loan proceeds requirement is over Rs 50 lakh
∙ Relatively higher rate of interest on bigger loan proceeds
∙ Loan for the specific programs might not be approved by the government agencies
∙ You look for a higher repayment tenure of over 10 years
Concentrating on the reasons above means an educational loan is not an ideal option for instant or higher loan proceeds. To meet the above requirements, you may consider availing of LAP (loan against property) as this option comes with a lower loan against property interest rate due to its secured nature. To obtain this credit option, you require an owned asset that you can pledge as security or collateral to the lender. Loan against property eligibility too is minimal owing to its secured nature. To be eligible for this credit option, you must have a constant flow of income and an asset in your name to provide as collateral or security.
There are distinct scenarios in the case of a loan against property, whether it is unoccupied, self-occupied or rented. In case the property is unoccupied or self-occupied, the banks would simply provide you LAP of nearly 50 – 90 per cent of the property’s market value. In case the property is rented, banks would provide you with an LTV (loan to value) ratio of nearly 40 – 55 per cent. Even if your property is mortgaged, you get the choice to avail top-up loan.
Loan against property eligibility and documents
The basics of LAP involve principal amount, rate of interest, mortgage repayment tenure and EMI (equated monthly instalment). To be eligible to avail of LAP, you should be an Indian citizen and salaried or self-employed.
You must submit the listed documents –
∙ Salary slips for the past three months
∙ Bank statements for the past three months
∙ Aadhaar card or PAN card
∙ Property papers copy owned by you
∙ Address proof
∙ Current photo
∙ Form 16 ITR
∙ In the scenario of a self-employed individual, you must submit business existence proof, certified ITR (income tax returns) and company financials.
After providing these documents, your loan eligibility is dependent on your capacity to repay. Multiple parameters, like your income, overall liabilities, credit score, age, etc., play a crucial role in evaluating your creditworthiness.
Also Check: Loan against property eligibility
What are the advantages of availing loan against property for your child’s higher education?
∙ A swift solution
As you own a property, availing a mortgage loan is easier. You only need to provide the required documents with the application. As it is a secured credit option, lenders may have a reduced risk of losing money as the amount may be recovered simply by selling the property. Unlike the education loan, there’s no need to wait for the university to approve the application and then approach the lender for due process.
∙ Getting approvals easily
An education loan application might get rejected owing to various reasons like poor CIBIL score, low income or if your child’s program is not approved by the UGC. In such a scenario, a loan against the property is a highly preferred option for the parents.
∙ Higher loan proceeds
With in-depth planning, parents require to determine an apt loan proceed required for their ward’s education. The expenditures involve living expenses, tuition fees, and other additional expenditures. Thus, the overall amount is way higher for the child’s higher education.
Thus, an education loan is not a preferable choice because it generally has a cap of Rs 50 lakh. With a loan against property, you can simply go for proceeds over Rs 50 lakh. With a higher property market value, you may get a loan of over Rs 50 lakh.
∙ Lower rate of interest
An educational loan may be expensive for you if compared with a loan against property. With a lower rate of interest, a loan against property comes across to be extremely cost-effective.
When faced with financial exigency, most generally think of either availing of a loan or liquidating their investments. While liquidating investments can save you a lot on interest constituents, it highly interrupts your long-term goals. While a loan can be a better move in the scenario of financial exigency, selecting the correct loan kind can be confusing as there are a lot of options available.
As there’s more awareness regarding unsecured loans and they may be availed easily, individuals do not factor in other options that may be better. However, the interest rate charged on the unsecured credit options is usually high, and the proceeds offered can be inadequate for your needs.
When looking at different credit options available, individuals often fail to realize that there’s a value locked in their property. With a loan against property, this value can be leveraged. Not just for education, proceeds from loans against property can be used for personal or business requirements. However, before availing loan against property, ensure to factor in your repayment capacity as defaulting on this loan’s EMIs can make the lender hold the right of your pledged property. Also, ensure you do not put your primary home or property or property required for business purposes as security because failure to repay the loan EMI on time may make the lender take full control of your primary property. Moreover, before you place an application for a loan against property, ensure to compare the rate of interest, charges, and margins with multiple lenders. Doing so would assist you in making an informed decision because a loan against property is usually a long-term commitment loan.