A loan against property offers access to substantial funds against a set of customer-friendly features like affordable interest rates, longer repayment tenor, and many others. Furthermore, the reduction of policy rates by the RBI has made it even more affordable to secure the required funding.
Nonetheless, individuals planning to apply for a LAP must consider a few pointers beforehand and make an informed decision.
Factors to consider before applying for a loan against property
Individuals should apply for a LAP after considering a few essential factors, including–
- Available loan amount
The first thing to check before applying for a loan against property is the loan quantum provided. The loan amount here depends on the loan-to-value (LTV) ratio extended by a lender, which signifies the highest amount one can borrow against the market value of a property.
Here is an example to explain it further –
You have decided to pledge a property worth Rs.1 crore to get a LAP, and a lender is extending an LTV of 75%. In that case, you can get up to Rs.75 lakh as a loan.
A point to note here is that this ratio alters with the choice of financial institution.
- Applicable interest rate
The next point to evaluate here is the applicable interest rate on a loan against property. As mentioned above, RBI’s decision to reduce policy rates had a positive impact here as borrowing became affordable. Individuals can now service a loan at a comparatively lower interest rate, which, in turn, lowers their total debt.
- Eligibility and documentation
The third point on this list is a LAP’s eligibility and documentation. Considering them in advance aid borrowers to avoid any hiccups during their loan application process and avoid any chances of rejection.
Here are the highlights of loan against property eligibility criteria –
- Age: 25 to 70 years
- Employment type: Salaried and self-employed
- Work experience: As mentioned by a financial institution
- Monthly income: As specified by a lender
- Property location: Areas specified by a financer
Now, a point to keep in mind is that these parameters will alter with the selection of a lender. Hence, individuals should refer to lender-specific requirements before applying.
Besides eligibility criteria, one should also know the documents needed for availing a LAP –
- KYC papers
- Proof of employment (ID card issued by employers for salaried individuals, or business ownership papers for self-employed)
- Income proof (Salary slips, ITR documents for salaried applicants, balance sheet and profit and loss statement for self-employed applicants)
- Property papers (property purchase or registration papers and title document of a property)
Apart from these, a financial institution may require additional documents. In such instances, individuals need to fulfil that to complete the application process.
- Repayment options
Alongside the eligibility, documentation, loan amount and other details, one should also learn about repayment options, as it will aid them in paying off their debt better. Leading financial institutions offer part prepayment and foreclosure options alongside regular EMIs.
The availability of such lump-sum payment options makes it easy to pay off credit. In this regard, debtors can take the assistance of a loan against property EMI calculator to plan their finances better.
However, before doing so, they should check if there are additional charges associated with those payment methods as they will amplify the total cost of borrowing.
- Additional charges
Talking about additional charges, they play a significant role in determining the total cost of a loan. This includes processing charges, legal fees, prepayment and foreclosure charges, etc. Not considering these can drive up the total loan expenses and put additional burden.
In this regard, intending borrowers can do market research and opt for a lender not imposing such charges to lower their total borrowing cost.
- Pre-approved offers
Last but not least, checking pre-approved offers is also imperative. Offers like these reduce the time required for loan processing and save time. These offers are usually available for existing customers and on financial products like a home loan, loan against property, etc. Prospective borrowers can now check their pre-approved offers online by submitting their name and contact number.
Being aware of these aforementioned factors can help individuals to avoid making any uninformed decisions and face future complications. Nonetheless, one should also be aware of the factors that affect their chances of securing a LAP to avoid setbacks during application.
Here are a few points that individuals should keep in mind before they apply for a LAP–
- Property location: The location of a property is a determining factor in case of a LAP. Properties in prime locations fetch a higher loan quantum than others.
- Repayment capacity: The repayment capacity of a borrower also plays a part here. Applicants who meet the monthly income criteria and surpass them stand a better chance of loan approval than others. Borrowers can include their different income sources to better their eligibility.
- Customer service: An easily accessible loan against property customer care number can aid debtors to solve issues they face and offer a better borrowing experience.
The rise of online services has made it easy to apply for a LAP, but one must consider all the associated factors and read through loan terms to make a knowledgeable decision