Key Things to Remember Before Taking a Loan Against Property

Both salaried workers and self-employed people can benefit from a Loan Against Property. A loan against property can be used to secure commercial or residential property. It is offered by many reputable banks and NBFCs and offers immediate funding. The interest rate is lower than a personal or gold loan.
These home loans are multipurpose loans that can finance various expenses such as a wedding, higher education, or business expansion.Let’s study Key Things to Remember Before Taking a Loan Against Property.

This post will discuss the essential points to remember before applying for a loan against your property. Before we get started, let’s first define loans against property.

What is a Loan Against Property?

One secured loan, the Loan Against Property (LAP), can be used for both salaried or self-employed purposes (e.g., wedding, high school, business expansion, home renovations, medical bills, etc.). The applicant’s credit history, income, and current liabilities will all play a part in determining whether they are eligible for a loan against their property.
The multipurpose loan comes with low-cost interest rates as the tenure can be extended up to 20 years. This ensures that you have a stress-free repayment period. It would be best if you were cautious when applying for a loan against your property. Before you apply for a loan against property, here are some things to remember.

Things to Remember Before Taking a Loan Against Property

Find below a few major things to keep in mind before taking a loan against property.

1. Evaluate the Value of Your Property:A Loan Against Property, as the name suggests, is when the borrower holds an immovable (residential/commercial) property as collateral. The bank will evaluate the property’s location, age, and amenities to determine how much loan you are eligible for. The bank will provide you with a loan of up to 80% of your property’s value. The borrower must know the importance of his property to get the loan amount he needs when he pledges it.

2. Check Your Credit (CIBIL) Score:

Your credit score will determine the interest rate you receive from a lender on Loan Against Property. It is a numerical reflection of your repayment history.
You can negotiate terms and conditions with your bank if you have a good credit score of at least 750. If you have a poor credit score, you might not be offered a loan by the bank or may have to pay higher EMIs. If your credit score is good, apply immediately for LAP. If not, pay the EMIs promptly and wait until it improves.

3. Compare the Interest Rates of Various Lenders:

Take your time with the first lender to make an offer. LAP is not required to be applied to the bank because you already have an account. Due to your loan’s high-interest rate, you will be responsible for the EMIs for the next 15-30 years.
Before you apply for LAP, make sure to compare the interest rates of different banks and NBFCs. Online platforms such as Magicbricks make it easy to compare interest rates from many banks and NBFCs. This will save you time and effort. After reaching the speeds, you can choose the bank that offers the lowest interest rate for Loan Against Property. This will help you save a lot of cash.

4. Know the Eligibility Criteria of the Lender: Banks have different eligibility requirements for LAP applications. Lender ‘A’ might offer Loan Against Property to people 21 and over, while lender ‘B” may offer LAP for those who are 25 and older. For salaried employees, the minimum income requirement for lender “A” may be Rs. For lender ‘A’, it could be Rs. 40,000. 50,000.

Before you apply for a loan, you need to be aware of the eligibility criteria. This will help to reduce the chance of being rejected and ensure that you get the loan amount you want. The lender’s official website or customer service representative can help you determine the eligibility criteria.

Remember that every loan application rejected is a hard inquiry and can negatively impact your credit score. This hard inquiry is visible to any lender that checks your credit before offering you a loan. Lenders may not approve you for the loan amount you request if your credit reports have too many hard inquiries, such as multiple rejection applications.

5. Analyse Your Loan Repayment Capacity:

Before applying for a loan on your property, you must assess your ability to repay the loan. To calculate the monthly installment amount you can afford, create a budget that includes all your income and expenses. This will allow you to manage all your financial needs.

Online home loan EMI calculators can be used to calculate your home loan installments based on your repayment plans. To get various combinations of monthly payments, you only need to enter information such as your income, home loan amount, interest rate, and preferred tenure.

6. The Repayment Tenure and the EMIs:

LAP, a secured loan, can be repaid for up to 20 years. While LAP’s EMIs will be lower if you choose a longer term, the interest rate will remain high for a longer time. You will pay the interest rate less for a shorter term, but your EMIs are more expensive. This complex calculation is time-consuming and can lead to human errors if it’s done with pen and paper.

To understand the EMIs that you will be paying if you select a loan amount and tenure, use an online EMI Calculator before you apply for a Loan Against Property. An online EMI Calculator is simple to use. All you have to do is fill in the amount, tenure, and interest rate.

Let’s look at an example to help us understand EMI Calculation. The LAP was calculated at a rate of 6.70% per annum. Different loan amounts and tenures may be available.

Amount	10 years	15 years	20 years
Rs. 30 lakh	Rs. 34,371	Rs. 26,464	Rs.22,722
Rs. 55 lakh	Rs.63,013	Rs. 48,518	Rs.41,657
Rs.90 lakh	Rs.1,03,112	Rs. 79,393	Rs.68,166

7. Get an Estimate of the Loan Amount You Need to Borrow:

LAP is a loan that can be offered to you for up to 80% of your property’s actual value. But you have to ask yourself how much you need. Make a list of expenses you will be using the Loan Against Property to determine the amount you need.
Get an estimate of how much you will need. If you’re borrowing money for your daughter’s wedding, you might list expenses such as venue, decorations, invitation cards, and gifts. After you have completed the list, take a look at your income and expenses. You will be able to determine the amount of loan you need.
Suppose your estimated amount exceeds Rs. The bank will offer Rs. Fifty lakhs if your estimated amount is Rs. 70 lakhs, avoid falling into this trap. Only borrow what you need. You will be responsible for repaying the loan and may find EMIs stressful later in life.

8. Know the Processing Fee and Other Charges Involved:A lender will ask for a processing fee if you are approved for LAP by a lender. This usually amounts to 3% of your loan amount + GST. Some banks will also charge prepayment fees, service charges, and stamp duty. It is essential to inquire about all costs and make an informed decision.

9. Know the Documentation Required:

The application process for LAP is complex and requires a lot of documentation as collateral. KYC (Aadhaar card, PAN Card, and Voter ID Card) is not required. While property and other documents can remain the same for everyone, income documents will vary depending on the nature of the work.
For salaried individuals, you should submit your salary slips (last three months), bank statements (previous six months), form 16, and so on. If you are self-employed, the lender might ask for a bank statement (last 6 months), business continuity proof, ITR (2 years), etc. To avoid rejection or hassle in the future, make sure you have all the necessary documentation before applying for a Loan Against Property.

The Bottom Line on a Loan Against Property

Loan Against Property is a great option to help with financial emergencies. It has no restrictions on the use of funds and can be used for up to 20 years. After comparing the interest rates and other features offered by banks and NBFCs.
Our home loan cashback program is also available. You get cashback on home loans, flexible repayments, lower interest rates, a higher loan amount, financial advice from an assigned relationship manager, and free MB Prime membership. To learn more about our home loan package, visit our section.

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