Five mistakes you should avoid while taking a loan against property

A loan against property is secured financing given against a residential or commercial property. It is an excellent way of securing funds during cash crunches as it provides the borrower with a substantial loan amount at an affordable interest rate with no end-use restrictions.

However, there are certain mistakes that borrowers must avoid while availing a loan against property

These mistakes are mentioned in the pointers below:

  • Ignoring interest rate comparison

Some borrowers make the mistake of borrowing without doing proper research. Part of one’s due diligence when taking a LAP is to compare the loan against property interest rate of different borrowers. This will help potential borrowers in choosing the ideal lender and serve an affordable borrowing.

By selecting the best lender, which offers competitive interest rates, borrowers can ensure lower EMIs.

  • Not considering the loan tenor

A loan against property has to be paid off within a given tenor. Individuals must pay special attention to this repayment tenor. It is advisable that borrowers opt for a shorter tenor and save substantial interest. On the other hand, a shorter tenor results in more EMIs, which could strain one’s budget.

As a result, borrowers must maintain a balance between the tenor and EMI by opting for a tenor that best suits their repayment capacity. Regarding this, one can use an EMI calculator for loan against property. This online tool is convenient to use and easily available on leading lenders’ websites. This helps to calculate accurate monthly instalments that one needs to pay depending upon the loan tenor and amount.

  • Ignoring the disbursal time

Not considering the disbursal time is one of the biggest mistakes one makes before taking a loan against property. For fast disbursal, one must submit the needed documents in time and meet the eligibility criteria for loan against property

The disbursal time typically varies from lender to lender. So, if you are in urgent need of cash, make sure to opt for a lender that deposits the fund into your account in the shortest time.

  • Failing to review the LTV (loan to value) ratio

LTV or loan to value ratio is the amount a financial institution is ready to lend a borrower. This ratio is assessed by considering the market value of the mortgaged property.

The LTV ratio depends on various factors, including:

  • The borrower’s monthly income
  • Credit history and credit score
  • Applicant’s age
  • Property documents
  • Location of the property

It usually ranges between 70-90% of the property’s value and is, therefore, an essential factor that borrowers must consider.

  • Neglecting the processing fees

While availing a loan against property, the lender usually charges processing fees. Now, the amount of this fee varies according to the lenders. Some lenders may charge substantial processing fees, while others levy a negligible amount of the same.

It is a borrower’s duty to conduct proper research and choose a lender with the most flexible and transparent servicing terms and conditions.

  • Not keeping the documents handy

When a borrower applies for a loan against property, there are certain documents that he/she has to submit. These documents indicate the lender about the applicant’s legitimacy and support the securing of a property loan. One of the most unpleasant mistakes one can make is failing to submit the proper documents. Remember that a financial institution may reject the loan application if a borrower fails to submit the required documents on time.

Some of the documents required to obtain a LAP loan are:

  • Duly filled application form
  • Income proof (salary slips and form 16)
  • For self-employed individuals, procurement of business proof is mandatory
  • KYC documents
  • Property documents

Failing to submit proper documents may also delay the loan disbursal process. It is, thus, crucial for individuals to keep all the required documents handy before applying for a loan against property.

  • Not maintaining a high CIBIL score

Although a LAP is secured financing, lenders also consider applicants’ credit scores before approving the loan application. A high credit score indicates a healthy credit history and increases the lender’s trust. It can also help you secure a higher LTV, lower interest rate, and more favourable EMI terms.

Here are a few ways through which one can increase his/her credit score:

  • Timely repayment of credit card bills
  • Limiting credit utilisation
  • Maintaining a healthy credit mix
  • Not taking too many loans at the same time
  • Regular checks on credit report

Subsequently, leading financial institutions across the country offer attractive personalised offers for borrowers maintaining a high credit score and meeting the eligibility. These offers, also known as pre-approved offers help in simplifying a loan application process. They are available across different financial products, including a loan against property and home loan. Individuals can check their pre-approved offers by providing some basic details.

Availing a loan against property is powerful financial instrument that can help one meet a host of financial requirements. Ensuring that one avoids the above-mentioned mistakes and keeping the documents handy will facilitate an easy and hassle-free borrowing experience.

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