A loan against property (LAP loan) is a secured loan, offered against a residential or commercial property. Your house, flat, apartment, office, or store acts as collateral for loans against property. An individual’s salary, credit history, and the present value of the property are just a few of the essential criteria needed for the determination of the approval of the loan.
If you are planning to apply for a loan against property, here are a few common mistakes you should avoid.
Avoid Making These Mistakes When Taking out a Loan Against Your Property
Misrepresenting the Property Value in Your Application
It’s pointless to try to show a higher property valuation in your loan application. Before loan sanction, your property will be scrutinized. The lender will evaluate the property in person, and finally, the amount of the loan will be determined by the property’s current market value.
Not Comprehending the Stakes
Know what you’ll provide the lender for money. Even if you can pledge land, residential or commercial property, you should always assess your ability to repay the loan first. This will save you from losing a valuable asset.
Not Considering Your Credit Score
It is necessary to consider your credit score, even though this is a secured loan. Your credit score will impact whether or not you will be approved for a loan. It will also determine the terms of the loan. This score is important as it determines if you are eligible for a favourable tenor or interest rate. For instance, if your credit score is 750, you will attract a higher interest rate as against a score of 800. To keep a track of your credit score, make sure you pay your EMIs on time.
Not Selecting Affordable Loan Against Property Interest Rates and Shorter Tenor
When opting for a property loan, get the best price for your asset. Choose between floating and fixed interest rates based on the economy’s volatility. Even a little adjustment in the interest rate can influence the loan’s stability and repayment. Shorter tenors are possible with a nominal interest rate and they help to reduce your EMIs and get out of debt sooner.
Ignoring Prepayment and Foreclosure Charges
When taking a loan, read the paperwork thoroughly to ensure that you understand the prepayment and foreclosure penalties. You will be charged these fees if you choose to pay more than your EMIs or if you wish to pay off the full loan before the end of the term. Because part prepayments might help you save money on interest, look for a lender that charges nil or little for this service.
Not Opting for a Sound Repayment Schedule
Finding the best loan against the property interest rate is not enough. You must prepare ahead of time to return the money you took. Use a LAP EMI calculator to calculate the total interest you’ll pay over time, as well as the best EMI based on your salary. Calculate your monthly spending and existing financial obligations to ensure that the payback does not engulf you.
Not Preparing for a Longer Processing Time
When opposed to a collateral-free loan, loans secured by real estate generally take longer to approve. This is because the lender must first evaluate the property’s worth before approving the loan. Thus, if you are applying for a loan against property, keep the buffer time in mind.
Ignoring Your Lender’s Usage Restrictions
Some lenders put limitations on how you may utilise the money you borrow. Make sure you read all the terms and conditions to ensure you’re not bound by any use limitations. You may benefit from big loans, variable tenors, and rapid processing with a mortgage loan.
Additional Read: NewBuy Scheme Helping Buyers to Buy a Property