1. Lower Interest Rates
- Interest Rates: LAP interest rates generally range from 8% to 12% per annum, significantly lower than credit cards (18-36%) and personal loans (12-24%).
- Impact: By consolidating high-interest debts (like credit cards or personal loans) under a single, lower-interest LAP, borrowers can reduce the overall interest burden, making monthly payments more manageable.
2. Longer Tenure and Manageable EMIs
- Tenure: LAP can be repaid over a longer tenure, typically ranging from 10 to 15 years, sometimes up to 20 years, depending on the lender and loan amount.
- Impact: Longer tenure means lower monthly EMIs, which can ease cash flow for individuals, reducing financial stress. With a manageable monthly payment, borrowers can focus on paying off the consolidated debt gradually.
3. Higher Loan Amount
- Loan Amount: Since LAP is secured by property, lenders are usually willing to offer a higher loan amount compared to personal loans. The loan amount can go up to 60-70% of the property’s market value.
- Impact: With a larger loan amount, borrowers can consolidate multiple debts (credit cards, personal loans, or other high-interest loans) into one single loan, simplifying repayment.
4. One EMI to Manage All Debts
- Simplified Repayment: By using LAP to consolidate debt, borrowers reduce the number of loans to a single LAP, resulting in just one EMI each month.
- Impact: This single EMI makes debt management easier, helping borrowers avoid missed payments and late fees. Simplified payments can also help improve the credit score over time.
5. Tax Benefits (for Business Owners)
- Business Loan LAP: If the LAP is used to fund business expenses or consolidate business debts, interest paid may be claimed as a business expense, providing tax benefits under Indian tax law.
- Impact: This tax benefit can reduce the effective cost of borrowing for business owners.
6. Boosts Credit Score
- Debt Clearance: By paying off high-interest debts, especially credit cards, borrowers can reduce their credit utilization ratio.
- Impact: Consolidating and closing other debts can boost the borrower’s credit score, improving their financial standing over time.