Have you ever considered taking a loan against property to meet various personal or business needs, such as education, medical expenses, home renovation, debt consolidation, or enterprise expansion? As a secured loan option, it is a beneficial financial product that you can avail to give your finances a massive fillip in times of need.
However, before you apply for a loan against property, there are some important things you need to remember to avoid any pitfalls and make the most of this financial boost. In this blog, we will uncover the five critical things you must remember before taking a loan against property.
Simply put, a loan against property (LAP) is a type of loan that allows you to borrow money by pledging your property in the form of collateral. It has several benefits over other types of loans, such as:
- Lower interest rate: Since the loan is secured by your property, the interest rates for loan against property tend to be lower than unsecured loans. This reduces your monthly instalment and makes repayment easier.
- Higher loan amount: You can get a higher loan amount based on the value of your property. The loan amount can range from 40% to 70% of the market value of your property, depending on the lender and your eligibility criteria.
- Longer tenure: LAP offers a longer repayment tenure than other loans. One can expect them to easily extend to 15 years or beyond. This gives you more flexibility and convenience in repaying the loan.
- Prepayment charges are minimal: You would be glad to know that even LAPs are eligible for prepayments. Some lenders do not charge any prepayment penalty for LAP, while others charge a nominal fee. This helps you save on interest costs by closing the loan early, thus reducing the loan burden.
- Highly accessible: As these loans are backed by your property, they are easier to get approved than unsecured loans. You do not need a high credit score or income proof to avail of LAP. You just need to own a clear title and valuation of your property.
Here are five things you need to remember before taking a loan against property in India:
1. Check your eligibility and credit score: The first thing you need to do before applying for a LAP is to check your eligibility and credit score. Your eligibility depends on various factors, such as your income, age, property value, existing loans, and repayment capacity. Your credit score reflects your credit history and repayment behaviour and influences the lender's decision to approve or reject your loan application. A high credit score can also help you get a lower interest rate and better terms and conditions. Therefore, you should check your eligibility and credit score online or with the lender before applying for a LAP and try to improve them if needed.
2. Compare different lenders and offers: The next thing you need to do before taking a LAP is to compare different lenders and offers. Many lenders in the market offer LAPs with different interest rates, fees, charges, features, and benefits. You should compare them based on your needs and preferences and choose the one that suits you best. You can use online tools such as loan calculators, comparison websites, or aggregator platforms to compare different LAPs and find the best deal for yourself.
3. Read the fine print carefully: The third thing you need to do before taking a LAP is to read the fine print carefully. The fine print contains all the loan agreement details, such as the loan amount, tenure, interest rate, EMI, prepayment charges, foreclosure charges, processing charges, documentation charges, late payment fees, penal interest, etc. You should read and understand these terms and conditions carefully and ask the lender for any clarifications. You should also check for hidden charges or clauses that may affect your loan repayment or cost you more in the long run.
4. Assess your repayment capacity: The fourth thing you need to do before taking a LAP is to assess your repayment capacity. A LAP is a long-term commitment that requires you to pay regular EMIs for several years. You should ensure that you have enough income and savings to repay the loan without default or delay. You should also factor in any contingencies or emergencies that may affect your income or expenses in the future and plan accordingly. You should also avoid borrowing more than you need or can afford to repay comfortably.
5. Protect your property and yourself: The fifth thing you need to do before taking a LAP is to protect your property and yourself. A LAP is a secured loan that puts your property at risk in case of default or non-repayment. Therefore, you should take adequate measures to protect your property from damage or loss due to natural calamities, theft, vandalism, etc. You should also ensure your property against such risks and keep the insurance policy updated throughout the loan tenure. Moreover, you should protect yourself from unforeseen events that may affect your ability to repay the loan, such as death, disability, illness, job loss, etc. You should consider taking a life insurance or personal accident insurance policy that covers your loan liability in case of any such mishaps.
Ultimately, if you are looking for a low-cost and flexible loan option, a loan on property can be a good choice for you. However, you should also be aware of the risks involved in LAP, such as losing your property in case of default or foreclosure. By knowing the pointers mentioned above at your fingertips, you can make an informed decision when obtaining a loan against property.
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