Savings are essential in our lives to meet the family’s responsibilities or unexpected events. However, relying only on savings isn’t enough to cover the cost of your child’s higher education. If you are planning to send your child abroad, it requires careful planning. For overseas education, apart from tuition fees, you also need to plan for additional expenses such as boarding, food, and monthly expenses. The size of your savings won’t be adequate to fulfil the financial requirements of higher education. The need for extra funds in a foreign country can be arranged with an educational loan. But in some cases, the educational loan becomes difficult to procure. The reasons are –
- The loan amount requirement is above ₹20 lakhs
- Relatively higher interest on a larger loan amount
- The loan for a particular course may not be approved by government agencies
- When you desire the tenure of repayment to be above 10 years
Focusing on the reasons above, it seems an educational loan is not the ideal choice for an immediate or higher loan amount. To fulfil the above needs, a Loan Against Property (LAP) is a much preferable option. To obtain this loan, you need an owned asset that can be pledged as collateral to the bank.
There are different situations in the case of a LAP such as self-occupied, unoccupied, or rented. If the property is self-occupied or unoccupied, the banks would easily offer you LAP of around 50%-90% of the market value of the property. If the property is rented, the banks would offer you a loan to value ratio of about 40%-55%. Even if the property is mortgaged, you can take a top-up loan.
Eligibility and Documents required for a Loan Against Property (LAP)
The basics of a LAP include the principal amount, interest rate, mortgage tenure, and equated monthly instalments (EMI). To be eligible for a LAP, you must be an Indian resident and a salaried employee or self-employed.
You have to submit the following documents-
- Salary slip of the last 3 months
- Bank statements for the past 3 months
- PAN Card /Aadhar Card
- Address proof
- Copy of the property papers owned by you
- Recent photograph
- Form 16/ Income tax returns
- In the case of self-employed, you need to submit proof of business existence, company financials, and certified income tax returns
After submitting the documents, your eligibility for a loan is dependent upon your repayment capacity. Multiple factors such as income, total liabilities, age, credit score, etc., play an important role in assessing your credibility.
Benefits of taking a Loan against Property (LAP) for a Child’s Education
- A Quick Solution
As you own the property, getting a mortgage loan becomes easier. You just need to submit the required documents with an application. As it is a secured loan, lenders feel a lower risk of losing their money as the amount can be recovered by selling the property. Unlike an education loan, there is no need to wait for the university to accept the application and then visit the bank for due process.
- Getting Easy Approvals
An education loan application may get rejected due to several reasons such as low income, bad CIBIL score, or if the child’s course is not approved by AICTE/UGC. In such situations, LAP is the most preferred choice for parents.
- Higher Loan Amount
With intense planning, the parents need to determine an appropriate amount of loan required for their child’s education. The expenses include tuition fees, living expenses, and other additional expenses. Hence, the total amount is much higher for a child’s education when compared to just the tuition fees.
Thus, an educational loan is not a preferable option as it is usually capped at ₹20 lakhs. With a LAP, you can easily go for a loan above ₹20 lakhs. With a higher market value of a property, you can get a loan ranging from ₹24 lakhs to ₹39 lakhs or more.
- Lower Interest Rates
Educational loans can be costly for you in comparison to Loan against Property. With lower interest rates, LAP proves to be very cost-effective.