Loan against property serves as one of the most convenient sources of external funding, allowing borrowers to meet an array of planned and unplanned expenses. This credit instrument requires borrowers to mortgage a property as collateral to secure high-quantum funds against its value.
Being a secured credit option, the rate of interest charged against a loan against property is lower than that of collateral-free advances like personal loans. The lenient eligibility norms also ease the approval process.
The rate of interest on loan against property offered by multiple banks and HFCs ranges from around 7% up to 14%. However, the attractive terms and ease of approval often tempt borrowers to overlook some vital facets of this credit offer, creating confusion in the future.
Mistakes to avoid during LAP application
Here are some common mistakes to avoid while applying for loan against property –
- Not comparing interest rates
The interest rate on any loan offer determines the EMI and total interest outgo; hence, one should do the due diligence of evaluating it before applying for the credits. Typically, LAP interest rate ranges from around 7% up to 14.5%, and it varies from lender to lender and also depends on the borrowers’ credibility.
Therefore, it is vital to look around and compare different lenders and opt for one that levies the most affordable interest rate. In this regard, one can take the assistance of loan against property interest rate calculator for a faster and accurate result.
- Overlooking the processing charges
Like any other loan option, the cost of LAP also includes different additional charges that one should be mindful of. Even though it is about 1-2% of the total loan value, since LAPs are big-ticket advances, this figure can be substantial. For instance, if you apply for a credit of Rs.70 lakh, then a 1% processing fee will be Rs.70,000, which is a significant amount. Along with this, you should also factor in the prepayment and foreclosure charges.
Evaluating these charges beforehand can help individuals gauge their total cost of borrowing and plan their finances accordingly.
- Opting for an inappropriate tenor
The tenor of a loan plays a crucial role in its repayment, as the monthly instalments and total interest outgo depend on it. For instance, if you have availed a loan against property of about Rs.50 lakh at an 8% interest rate for a tenor of 15 years, your EMI will be Rs.47,000, but if you increase it to 20 years, it will come down to Rs.41,000.
A point to note here is that a longer tenor may reduce the EMIs, but it will increase the total interest liability and vice versa. Hence, one should be attentive while opting for a tenor and just not go ahead with a longer one because he/she has been offered that. Applicants can take the assistance of a loan against property EMI calculator to find the most suitable tenor.
- Not considering the disbursal time
Not factoring in the disbursal time can be a major mistake while applying for a LAP. Typically, financial institutions need time to process and verify an application. Therefore, before applying for one, individuals should enquire about this pointer and schedule their monetary needs accordingly.
Alternatively, one can opt for a financial institution that extends pre-approved offers. Offers like these streamlines the loan application process and saves time. Borrowers can now check their pre-approved offers by providing their name and contact number. These offers are applicable on various financial products like loan against property, home loan, etc.
- Not arranging the documents needed
Arranging the loan against property documents required in their proper order is vital to complete this process without fail. These documents are usually collected by the lender’s representative from the applicant’s doorstep after submitting the application.
- Applying for more than the amount required
Meeting the loan against property eligibility criteria can make an applicant eligible for a higher loan amount. However, one should only apply for the amount they require, and not more than that. It will keep their repayment burden in check and help make repayments hassle-free.
- Neglecting the loan terms
A lender may allow applicants to avail a loan against property without income proof, but it may have repercussions like higher interest rates, lower loan amount, etc. Hence, it is ideal to read through the terms and conditions of a loan offers before signing the agreement.
A loan against property allows individuals to meet high-value financial obligations without hassle. At the same time, being aware of these mistakes will help them make smarter decisions and optimise their borrowing experience.