Unlike other types of loans, the interest rates for loans against property are generally on the lower side and this could be of advantage to you. Moreover, you could use the sanctioned loan amount for any requirement, without any restriction.
While these benefits make it a viable option, there are certain aspects of LAP that you must evaluate before applying. This helps ensure that you make a smart borrowing decision and don’t put your pledged asset at risk.
Property’s Valuation and Impact on the Loan Offer
The pledged property’s value plays a crucial role because lenders determine the loan amount and other terms for the loan based on it. As such, it is important to know your property’s market value beforehand, including the valuation that may be considered by the lender.
All properties are valued based on certain parameters. These include:
● Location
● Builder’s reputation
● Size
● Amenities
● Condition
● Age
● Surrounding infrastructure
● Connectivity to key areas in the city, town, or village
● Paperwork
These factors affect your property’s current value, and you should be aware of the most updated valuation. It is also crucial to note that banks and NBFCs have different preset ratios for certain types of property.
For instance, many lenders offer loans with the loan-to-value (LTV) ratio going up to 75% for residential properties. However, this ratio may only go up to 65% for commercial properties. You should check these limits set by the lender before applying. If the lender offers a low LTV ratio, then you may not get the required funds through a loan against property.
Difference in Interest Rates
The interest rate is a crucial factor to consider as it dictates the loan’s affordability. Financial institutions offer varying rates, wherein some may be competitive and others may be too high.
Directly comparing these rates will help you find the lowest and most financially viable option. Moreover, it will aid in estimating an accurate figure for the repayment amount. Here, you could use a loan against property calculator to determine the EMI and interest payable for a given rate.
Tenure and EMI
While comparing offers, you can also try to estimate the right loan tenure for yourself. Once you have settled on the sum required, you can use a
loan against property calculator to adjust the tenure and the interest rate as needed.
The easiest way to find the ideal tenure for yourself is by considering your financial objectives. For instance, if you intend to clear your debt in 5-7 years, use the calculator to see if there are suitable terms available. As you adjust the tenure, you will notice that the EMI amount changes as well.
As a rule, a shorter tenure leads to a large monthly instalment, and vice-versa. Use this tip to find the best term and assess lenders to see if they offer such options.
Property Ownership Status
Typically, lenders prefer properties that have a single ownership since they tend to have a lower chance of dispute. In case you decide to pledge a co-owned property, the loan processing may take longer.
Financial institutions will conduct additional verification and require all co-owners to approve of the undertaking. This could be a tedious process and lead to disputes. In case of such an event, lenders will not consider the property for the loan.
Loan Fees and Charges
Lenders levy various fees and charges on loans. One among these is the processing fee, which can range from 1-7% of the sanctioned sum. This can amount to quite a significant figure, but you can negotiate for a better deal.
However, this depends on your relationship with the lender, credit score, financial standing, and specifics of the application. If everything is in order and lenders view you as a creditworthy individual, they may reduce these fees.
Eligibility and Other Requirements
Before you apply for a loan against property, you must note the criteria set by the lender. These usually refer to your age, employment status, income, credit score, and property specifics. Bear in mind that these terms vary across financial institutions. Moreover, if you are unable to meet these requirements, it may hinder your chances of approval and can potentially lead to less favourable loan terms.
Considering that you will be pledging an immovable asset, you must assess these factors before applying for LAP. Oversights can lead to defaults, which may put your collateral at risk. However, leading lenders usually have transparent terms and conditions. Moreover, you can always use an EMI calculator to plan your loan repayment efficiently.
Disclaimer: This article is published in association with Bajaj Markets and not created by TNM Editorial.
