Individuals in need of substantial funds can secure a loan against property and borrow a high-sum from lenders by keeping their property as collateral. However, certain factors like loan against property interest rate, eligibility, and documents required, Loan to Value Ratio, and more should be considered before applying for this secured credit.
Advances like LAP cater to borrowers who want to consolidate their debts or finance their personal requirements. Furthermore, the amount one receives by mortgaging his property has no end-use restrictions.
Therefore, to reap maximum benefits from this financial instrument, borrowers must consider some factors.
Factors to consider before applying for a LAP
The various financial institutions offer this loan as a financial solution to those planning to fund their child’s education, a wedding, or any other personal needs. They offer this loan as a certain percentage of a property’s current market value. One must take into account a few considerations before LAP application. They are as follows:
- Existing liabilities: Before loan disbursal, lenders check a borrower’s credit history to know his/her repayment capability. Therefore, it is crucial to make timely payments to clear off dues. Any additional liability can increase the financial burden and decrease repayment capability. Hence, the chances of a lender approving a loan against property decrease in such cases.
- Property loan interest rate: Different lenders offer a LAP at various rates of interest depending on factors like a borrower’s income, credit history, etc. It is vital to compare lenders before settling for a lower loan against property interest rate. As the interest rate decides a borrower’s EMI outgo, it is important to consider before loan application.
- Prepayment and other charges: Apart from considering interest rates, applicants must not overlook other parameters like prepayment, foreclosure, processing charges, and penalty on late payment. Financial lenders apply these charges at different advents. Therefore, having prior knowledge regarding this is beneficial to a loan borrower.
- Property documents: Although the documentation of loan against property is easy, lenders may not approve a loan in case of property disputes or unclear statements regarding the ownership. Therefore, it is essential to keep the property papers ready before applying for this loan.
- Loan to Value ratio (LTV): A lender caps a certain percentage of a property’s current market value while deciding the loan amount. This is known as the Loan to Value ratio. Generally, the value is restricted to 50-60% of a property’s market value. Additionally, the loan tenor can range up to 20 years. Therefore, it is important to consider a property’s market value before mortgaging it.
- Tax benefits: One must note that there are no tax benefits on loan against property except it is used for home renovation.
Furthermore, some financial lenders offer quick processing and instant disbursal of a LAP to ensure a borrower’s convenience. They also provide pre-approved offers for the hassle-free loan application process. One can check their pre-approved offers by entering basic details like name and number.
Things to avoid while securing a loan against property
Other than the aforementioned considerations, borrowers should steer clear of certain factors while taking a LAP. Those factors are as follows:
- Avoid over-leveraging: At times, borrowers end up over-leveraging, which could affect their financial stability. It increases the financial liability leaving little room for other expenses.
- Evaluate eligibility: Meeting a lender’s requirements should be the primary focus of a borrower. In case of any discrepancies, lenders may reject the loan application.
- Avoid choosing a long tenor: A long tenor means an increase in the EMI burden. Borrowers must choose shorter tenors to close the loan as early as possible.
Therefore, choosing a lower loan against property interest rate and a shorter tenor along with the above factors are essential factors that you need to consider while applying for this loan.