Important Points to Check While Applying for Loan Against Property

Loans against property (LAP) are secured loans that are gaining popularity. Unlike other forms of loans, the interest rate is marginally lower. The tenor for these loans lasts between 15 to 20 years, and with the help of these long-term tenors, the repayment process becomes a lot more affordable. Loans against properties are secured loans that let you pledge your property with the lender of your choice as collateral to gain access to sizable funds. Given their secured nature, these loans can offer lower interest rates and more comfortable loan terms compared to their unsecured counterparts, such as personal loans.

If you’re still on the fence about applying for loan against property, here are points to consider. The loan eligibility criteria are simple and easy-to-meet, making it ideal for anyone who needs urgent funds. 

  • Zero Usage Restrictions:

Unlike other loan forms, there are no usage restrictions on the funds that you receive through a loan against property, as opposed to a home loan – wherein, the funds can only be used to address property purchases. This is not the case for a LAP because the funds can be used with any limitations and can address a variety of costs, such as wedding expenses, travelling expenses, debt consolidation, or even business expenses. 

  • Interest Rates:

The interest rates for loan against property are lower than other forms of loans given that it is a secured loan. However, to be eligible for a competitive interest rate, the following things should be kept in mind: 

  • If you do not have a stable monthly income, your interest rate will be higher or stand rejected, because of the degree of risk attached to your application.  
  • The property’s location must work in its favour to ensure competitive terms. if your property is located in a desirable area and is well maintained, then your interest rate will be much lower as your property has a higher resale value. It also bears well for the property’s Loan-to-Value (LTV) ratio, as well-located property will be offered a bigger sanction, based on its value. 
  • Your credit rating is also looked at as an important factor when applying for a LAP loan to see if you can keep up with the projected EMI payments. Your CIBIL score helps establish your financial background and is a key for lenders to accurately judge your repayment capacity based on your previous borrowing records. 
  • Other Charges:

Borrowers often forget to account for the extra added charges when applying for a loan against property. Some of these chargers are processing fees, service charges, prepayment charges, foreclosure charges, stamp duty charges, statutory chargers etc. Although these charges are not very high, it can surprise you if you haven’t factored in these costs while making your loan application.  

  • Loan Tenor:

You must ensure that the loan you are applying comes with a loan tenor that you are comfortable with because with a tenor that is too short, the monthly instalment will be very high, and with a loan tenor that is too long, you end up paying more as interest.

It is best to use a loan against a property calculator to narrow down on a tenor that best meets your capacity.

Here is how you can use an online calculator:

  • Visit any website that offers loans against property calculator services
  • Input the relevant data required, such as the loan amount required, tenor period and the interest rate that you are looking for
  • Your monthly instalments will be displayed as per your details, and with the help of this you can make an informed decision
  • Property Valuation:

When applying for loan against property the bank will conduct a thorough inspection of the property to establish its value. This valuation depends on the type of the property, age of the property, condition of the property and the location of the property. 

Usually, lenders offer anywhere between 60-70% of the property’s market value as a loan. 

  • Property Transfer:

When a loan against property has been approved and the amount has been disbursed into your account, the property’s ownership is transferred to the lender for the duration of the tenor. However, borrowers can continue to use the property even while repaying the loan amount, as long as they stick to their repayment schedule.

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