Loan against property is one of the preferable secured loan types available in the lending market. Such types of loans are called secured types of loans because the borrower needs to submit a collateral/asset to the lender to avail loans. Additionally, LAP enjoys the highest confidence of the financial institutions. Hence, the institutions can provide better interest rates and flexible benefits in comparison with unsecured loans like personal loans, credit cards, etc. LAP also has higher tenures, and as a borrower, you also have control of your properties. In other words, you can lease, sell the property to pay off your loans if there is a need. However, there are specific ground rules for availing LAPs so that you do not face any hassles in the future. We will be discussing the same in the following section.
Five rules to follow while taking a loan against property in India
As mentioned before, if you follow specific rules while availing LAP, you can have a peaceful repayment phase in the future. The rules are as follows:
1. Assessing your situation before taking up the loan
Note that you can avail LAP for 70% of the property value, which can be a lucrative amount but you need to borrow based on your requirements only. Also, you should note that you should not have the EMI amount of more than 65% of your monthly income. In other words, you should ideally consider your repayment phase before applying for LAP.
2. Choosing a smart tenure
A loan against property has a longer tenure in comparison with other types of loans, i.e. the tenure can go upto 15 years. However, it would help if you understood that the longer the tenure, the longer is the financial commitment. Alternatively, if the tenure is lower, you might have higher EMIs to pay. Hence you need to choose a duration which would not hurt your repayment phase but also help you to close the loan account when it is appropriate. An online EMI calculator can guide you to choose the best tenure, which can be comfortable for you. You can also use the calculator facility to check your loan against property eligibility.
3. Not missing the payments
Paying the monthly EMIs on time is a great way to improve your credit score and also to avail future loans. A credit score determines your creditworthiness and a low credit score might create multiple financial issues. A bank/NBFC would be flexible to their borrowers only to an extent, and hence the onus is on the borrowers to maintain a steady repayment phase. I want to reiterate a smart repayment plan can help the borrower to overcome any challenges due to EMIs.
4. Look around for better lenders
Due to the increase in demand for LAP, there are several financial institutions in the market making very similar offers. The challenge for the borrower is to choose a lender who offers better interest rates, has a flexible process and documentation, etc. Top lenders also provide insurance facilities for LAPs as such kinds of loans are long term and qualify well for insurance.
5. Know everything about your LAP
Knowing everything about your loan is essential as you do not want to end up being surprised later. Reading the entire terms & conditions and discussing the same with your financial partner if you have any questions is a great idea.
Loan against property eligibility depends on several factors like market value of property, credit score of borrower, etc. and as a borrower, you should know such things beforehand to ensure a smooth transaction and also to build a better financial portfolio.
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