5 Important Factors to Consider Before a Loan Against Property 

While opting for a secured loan, you need to provide something as collateral. It needs to have the exact valuation to match the expected principal amount. In case you require a lump sum fund immediately, using your property as collateral would be the best option. Whether it’s a house or a plot, taking loans against property comes with numerous benefits. For instance, the interest rate charged will be significantly lower due to the financial security offered to the lender. You can also opt for 75% of the property’s value as the loan principal. On top of everything, you don’t even have to sell it, thereby retaining your rights over the asset. 

However, it is not at all advisable to fall for all these advantages from the beginning. In other words, you should weigh both the pros and cons before deciding to use the property as collateral. That being said, we have presented here a detailed walkthrough of the 5 most important factors to consider before applying for a LAP. 

What is a Loan Against Property?

Loan Against Property or LAP is a secured loan where applicants need to provide collateral to acquire the funding. Regardless of the property type, it needs to be registered under the applicant’s name to get the loan. The maximum allowable principal amount depends on the property’s market valuation. 

Eligibility Criteria

Before applying for loans against property, you need to meet the eligibility criteria as discussed below. 

1. Ownership: The property should be registered under your name. only then you will be allowed to use it as a collateral for the loan. 
2. Income: Having a stable income is crucial for all applicants. This will assure the lender that you can repay the loan amount on time without any major issues.
3. CIBIL score: Having a good credit score is likely to improve the acceptance rates of the LAP application. Most lenders prefer applicants to have a CIBIL between 650 and 750.

5 Factors to Consider Before Taking a LAP

Property Valuation

All loans against property are based on the asset’s market valuation. Your lender will estimate the current property value depending on the market rates. In other words, you won’t be allowed to use a previously estimated asset value to get the loan. Here are certain things to remember for property valuation. 

1. The valuation will depend on regional market rates, property age, type, and other determinants. 
2. You need to have rightful ownership of the asset with no previous or ongoing legal dispute. 
3. The maximum allowable loan amount against a property is approximately 50% to 70%. 

Interest Rate and Loan Tenure

Considering the interest rate and its type is crucial for taking the correct loan against property. Usually, lenders offer two options, namely:

1. Fixed interest: Whatever interest rate has been decided before granting the loan will remain unchanged throughout the tenure. 
2. Floating rate: Such interest rates are subject to quarterly revisions. If the property value changes after a quarter, the interest rate will also vary accordingly. 

You can use Bajaj Markets app to calculate the interest rate based on your credit score, property valuation, and other factors. Additionally, you also need to think about the repayment tenure for the loan against the property. Usually, people think choosing a longer tenure can reduce their financial burdens. However, in reality, it incurs a higher interest rate, thereby increasing the EMI to be paid. 

Repayment Capacity

You must opt for a loan against the property that can be aligned with your income. If not, your financial liability may increase significantly, making it hard for you to manage your cash flows. Below are some of the key attributes you should consider. 

1. Your monthly income should be sufficient enough to help you pay the EMIs without any missed or delayed payments. This way, you won’t become a defaulter and risk losing the property.
2. You need to provide all the relevant income documents to your lender as a part of the eligibility requirements. 

Processing Fees and Other Charges

Every loan against the property comes with a processing fee. The exact amount will be specified in the terms and conditions mentioned by the concerned lender. Apart from this, there can be other charges, like:

1. Property valuation fee
2. Legal charges
3. Foreclosure fees
4. Late payment interest fee

Risks of Losing the Property

Lastly, you should remember that failure to pay the EMI on time can make you a defaulter. If you do not repay the loan’s amount within the specified tenure, you will lose your ownership rights on the asset. 

Conclusion 

With this detailed guide, it’s evident that taking loans against property should involve careful consideration. Only then you can get the most affordable loan that will help manage your finances with ease. If you want to negotiate any term, connect with your lender for a thorough discussion beforehand.