Both salaried employees and self-employed individuals are blessed with a loan against the property because many reputable banks and NBFCs offer it as a quick source of capital. You can obtain a LAP at a lower interest rate (than a personal loan or a gold loan) if you possess real estate (commercial or residential), which you can use as collateral with the lender.
The best thing about these loan for home is that they may be used for numerous types of needs, including a wedding, higher education, business development, home renovation, and medical expenses, among others.
In this article, we’ll go through the key considerations you should make before applying for a loan secured by real estate. But first, let’s take a closer look at what is a loan against property.
Loan Against Property: What Is It?
A secured loan called a loan against property (LAP) can be utilised for a variety of needs as mentioned above. A property loan may be offered by banks and other financial institutions depending on several variables, including the applicant’s current debts, monthly income, credit history, etc.
With a 20-year term and affordable EMIs, this multipurpose loan gives assurance of a stress-free payback period. When making an application for a loan secured by property, you must be careful. Before submitting one, bear the following in mind.
Before taking out a loan against property, keep these things in mind.:
Before getting a property loan, the following are the important considerations that need to be considered.
- Determine the Value of Your Property: As was already said, a property loan is given when the borrower keeps an immovable asset as collateral, such as a residential or commercial property. The bank’s appraisal is conducted based on the property’s age, location, amenities, and other factors to determine the loan amount you are eligible for. Then the bank gives you a loan amount of up to 80% of the property’s worth. Therefore, the borrower must be aware of the value of the property to ensure that, when he pledges his property, he receives the eligible loan amount.
- Check Your Credit Score: Your credit score, is a numerical representation of your repayment history, and lets your lender knows everything they need to know about like, how you have handled past loan and credit card EMI payments. This civil score helps in determining whether the property loan you will receive will be given with a low or high-interest rate from a lender.
Your ability to obtain LAP at a cheaper interest rate and to bargain with the bank on other terms and conditions will increase if you have a strong credit score of 750 or higher. On the other side, if your credit score is low, the bank might not provide you a loan or it might come with a higher interest rate.
- Compare the Interest Rates of Different Lenders: Do not rush to accept the offer from the first lender you are presented with. The required EMIs you will have to pay over the next 15 to 30 years will be significantly impacted by the interest rate of your loan.
Therefore, before you apply for LAP, compare the interest rates offered by different banks and NBFCs and make calculations using the property loan EMI calculator which will save you time and effort. Once the comparison is complete, you can select the bank with the lowest rates.
- Understand the lender’s eligibility requirements: The requirements for applying for a property loan vary from bank to bank. Therefore, before you apply for a property loan with a particular lender, it is crucial to understand its eligibility requirements to reduce the likelihood of rejection and to receive the desired loan amount. You may quickly determine the eligibility requirements by calling the customer service agent or checking the banks or the HFCs official website,.
Also keep in mind that your loan application can get rejected every time, a hard inquiry is recorded on your credit score, which can lower your credit score. Before extending you a loan every lender who checks your credit score can see this hard inquiry as well. The lender may view you as being desperate for the loan and can be hesitant for granting you the loan amount you have requested if your credit record shows numerous hard inquiries because of numerous application rejections.
- You must evaluate your ability to repay existing debt first: You can make a budget using all your sources of income and outgoing costs to determine an expected monthly instalment payment that will allow you to meet all your financial obligations.
You can calculate property loan instalments in numerous combinations based on your preferred repayment schedules using online home loan EMI calculators. You can get numerous combinations of monthly repayments by simply entering information into the property loan EMI calculator.
- The LAP is a secured loan that gives a duration of up to 20 years for repayment. You will have more handy EMIs if you choose a longer repayment period for LAP, but for a longer length of time, you will also be responsible for the interest rate. If you choose a shorter duration you will pay the interest rate for a shorter period, but your EMIs will be higher. If performed using a manual method, such a complex calculation will be time-consuming and there could be human errors.
Therefore, use an online property loan EMI calculator before you apply for a property loan to understand the EMIs you would be paying. A property loan EMI calculator is user-friendly as all you have to do is enter the loan information including amount, tenure, and interest rate.
- Determine the Loan Amount You Need to Borrow: Lenders will provide you with a loan for up to 80% of the value of the property, but you must determine how much you require. A list of the expenses needs to be made for which you are asking for a Loan Against Property for getting clarity on the loan amount you require. For making the list review your monthly income and other expenses. Doing this you will be able to determine the precise loan amount you require.
Additionally, do not fall for the trap and accept the offer if your estimated amount is Rs. 50 lakhs and the bank are willing to give it to you instead at Rs. 70 lakhs. Avoid taking out more debt than you need to because you will be the one to pay it off and you may subsequently find the EMIs to be unpleasant.
- Be Aware of Other Fees: When you apply for a LAP with a lender and it is granted, the lender will often charge you a processing fee. In addition to this, some banks may additionally impose service fees, statutory costs, prepayment fees, and even stamp duty.
You must find out about all these fees to accurately assess the loan’s true cost and make an informed choice.
- Be Aware of the Documentation Needed: Since collateral is involved, applying for a property loan is a crucial process that necessitates a lot of documentation. Even though all individuals may have the same KYC (Aadhaar Card, PAN Card, Voter ID, Card, etc.) and property documents, income documents may differ based on the type of work.
The lender may require you to submit a bank account statement (last 6 months), business continuity proof, ITR (last 2 years), etc in case you are self-employed. Lenders may require you to submit salary slips (last 3 months), bank account statements (last 6 months), form 16, etc in case you are a salaried employee. For avoiding such problems or rejection in the future, make sure that you are aware of all the documents required before you plan to apply for a Property Loan with any lender.
The Bottom Line on a Property Loan
In conclusion, a Loan Against Property is an excellent way to handle financial emergencies in any situation because it offers flexible terms of up to 20 years, low-interest rates, and the best part is there are no restrictions on how the money will be used. After reviewing the interest rates and other characteristics of various banks and NBFCs offering LAP you will find HDFC Bank the best.