A loan against property (LAP) is a loan taken from a financial institution for various purposes. You can take the loan for business, child’ education, medical treatment, weddings, or any other financial need. A borrower can choose between a lump sum amount, and else he can also avail of an overdraft facility over a LAP.
If you are also planning to go for a loan against property, carefully go through this article to understand some of the primary mistakes most people make.
6 Things to Check Before Taking a Loan Against Property
- Interest Rate
One of the essential factors while applying for LAP, the interest rate varies from 9-14%, depending on the financial institutions and your credit score. It also depends on the total loan amount, tenure of credit, income, and several other factors.
It would help if you took your ample time to research to go for most economic interest rates prevailing in the market. Remember, you have to repay the loan amount, and a higher interest rate will result in higher EMIs, which may be troublesome for you at times.
Financial institutions offer a loan at a floating rate of interest and on fixed interest as well. Compare both and choose one which suits you best.
- Loan-to value ratio (LTV)
Most of the people going for LAP know least about LTV. It would be best if you made it a point to compare financial institutions to financial institutions and other financial lenders to understand what amount you are being offered for your property. Private sector financial institutions provide you with up to 75% of the total property value, while public financial institutions provide for about 65% as a loan against property.
LTY primarily depends on your property’s total value as evaluated by the financial institution, their internal rules, nature of the property (Commercial or Residential), tenure of loan, and various other factors.
- Loan against property eligibility criteria
Loan against property eligibility also differs from lender to lender, but most of the time, there is a set procedure followed by all. Understanding your eligibility will ensure that you are not rejected for the loan and get the total amount you have applied.
Most of the most common factors considered by most financial institutions include borrowers’ income, debts, savings, the personal credit score (CIBIL), employment status, applicant, repayment track record, and market value mortgaged property. Apart from all these, you are required to be an Indian citizen and be over 25 years old, with a regular source of income and a valid PAN card.
- Loan Tenure
The total loan tenure may range from 15 to 30 years. An extended repayment period means that you have to pay smaller EMIs, but you end up paying more interest (as interest gets compounded) on the loan amount. Whereas a shorter period will result in paying comparatively higher EMIs, with less interest paid and therefore decreasing the overall cost of borrowing.
- No Tax benefit
Many people apply for a loan to enjoy tax savings. Remember that you can’t claim any tax benefits on LAP. As per India’s Government, the tax benefit can only be claimed when applying for a home loan.
- Processing and other charges
A borrower is levied with processing and other financial institution charges while applying for a loan. These charges may include service charges, file charges, stamp duty charges, loan insurance charges, statutory charges, and other charges.
It is a good idea to know the total miscellaneous charges before applying to a LAP. This will help you to add all these charges to evaluate the actual cost of availing loan. The various charges may seem too small, but these bring a significant hike in the total cost of borrowing a loan when accounted for.
Conclusion
LAP is a good choice if you require some capital for various financial needs. Remember that the financial institutions will deny your loan if your property is very old or worn and demands extensive repairs. Moreover, most financial institutions discourage LAP on open plots or properties already mortgaged to other financial institutions.
So, while applying for a loan against property, it is advisable to research the various important factors and make sure that you enjoy the best available bargain in the current market.
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