It is common to apply for loans when you need cash to meet certain urgent needs. Out of the many possible loans you can take, a loan against property (LAP) is one of the most attractive options. A loan against property is a secured loan that the lender disburses after your property— commercial or residential— has been offered as collateral.
Lenders, including banks and non-banking financial companies (NBFCs), offer this type of loan at a significantly lower interest rate than other loans. Loans against property are also popular because they are secured loans. Most borrowers who take a loan against property do so to meet huge short-term needs, such as funding a wedding, paying for college, expanding business(es), paying hospital bills, and so on.
However, most borrowers often commit errors that make the loan repayment process much harder. In this article, you’ll learn about some of these mistakes and how to avoid them in future applications.
Five Costly Mistakes You Must Avoid while Applying for a Loan Against Property
Read on to find a list of five mistakes you must avoid while applying for a loan against property.
Not Researching the Best Loan Against Property Interest Rates
Sometimes, the interest rate on a loan against property can reach 14.5%— a rate that many borrowers find burdensome. So, we advise that you do proper research and compare the interest rates of loans offered by several lenders. Doing so will help you to choose the one best suited to your needs.
While having a credit score of up to 725 and above plus a sustainable source of income will get you a great loan against property offers, researching the best loan against property interest rates will save you from avoidable pitfalls. Also, by getting the best interest rate, you’d have secured for yourself an equated monthly instalment (EMI) tailored for your budget.
Opting For a Higher Tenor While Taking a Loan Against Property
When you opt for a higher tenor while taking a loan against property, your EMIs will be considerably lower. However, do note that the higher the tenor, the higher the interest charged on the loan. We advise that you opt for a short tenor because this guarantees that your outgoing interest amount will be minimal.
Ignoring the Loan-to-Value Ratio of the Loan Against Property
The loan to value ratio (LTV) is a figure that reflects the ratio of your mortgage to the worth of your property. This figure helps lenders determine the amount of risk they’re willing to take while providing you with a loan against property.
This ratio also determines what amount would be suitable for a downpayment, so ignoring the LTV is a bad idea.
Not Knowing the Processing Fee for a Loan Against Property
While doing your research, ensure you look out for the amount each lender charges as processing fees for the loan against property. Lenders typically charge 1% of the loan amount as the processing fee but some lenders also include the highest processing fee charged.
The higher your property is valued, the higher the processing fee. You must always check your lender’s processing fee value before settling for one.
Falling For Marketing Tricks While Taking a Loan Against Property
Some marketers and mortgage loan agents will employ every gimmick to attract your patronage. To get you to take a loan against property from them, they often mention a ridiculously low-interest rate to rope you in.
In the end, you’ll learn that the interest rate is higher than you thought. Therefore, you must do your homework on every lender. Again, ensure that the loan agreement is in writing before you hand over your documents for processing.
Avoiding the mistakes mentioned in this article will help you save yourself from having to pay exorbitantly high interest in the long run as well as protect your best interest. So, if you are planning to avail of a loan against property, keep the tips mentioned in this article in your mind while applying for a loan against property with your chosen lender.