Keep in Mind Before Applying For a Loan Against Property?
If you are in a financial crunch and looking for a way to get substantial funds to consolidate a debt or property purchase, or repay a bigger loan, a loan against property is an ideal solution. Sometimes
There can be emergency medical needs, like an unexpected surgery or treatment, when you need a considerable amount of ready cash. You may require immediate money to set up or run a business apart from medical conditions. In many cases, a loan against property can back you up. You need to know the loan against property eligibility before applying for such a loan.
The best thing about a loan against property is that you can use the funds for any purpose, personal or business. There is no limitation on the use of the fund. The property you are getting a loan against can be residential or commercial. Using your property to get a loan enables you to fulfill financial requirements. In case of non-payment, the lenders will hold the property as a mortgage for security.
What is a loan against property?
A loan against property, or LAP, is a secured loan offered by a bank against a physical asset you pledge as collateral. In case of a default, the lender gets the security of the property or asset. Banks offer you a lump sum loan against an asset that can be a house, land, or commercial building. Until the entire payment is made towards the loan repayment, the property stays with the lender as a security deposit.
Registered mortgage vs. Equitable mortgage
The difference between a registered mortgage and an equitable mortgage is due to multiple factors. Such as-
- a) Registration: No registration is required for an equitable mortgage, whereas registered mortgages require registration.
- b) Process: Registered mortgages start with a visit to the sun-register office. For an equitable mortgage, you need stamp paper.
- c) Cost Involved: To get a registered mortgage, you need to spend 5% of your home’s value, whereas, in an equitable mortgage, the stamp duty costs 0.1% or 0.2% of your home’s value.
- d) Risk Factor: A registered mortgage provides security to both parties—the borrower and the lender. Thus, it is considered risk-free. In contrast, an equitable mortgage does not have a legally binding contract. Because of this, it is riskier.
Must Read: PMEGP loan eligibility
Things to do before getting a loan against property
There are certain things you can do to understand if a loan against property is meant for you-
Evaluate your financial condition
Everyone is under financial stress due to debt, insurance, EMIs, school or college fees, etc. As you decide to go for a loan against property, make your you are not in a financial crisis. Make sure to consolidate all your debts before applying for such a loan. As you understand the part of your income that you can pay as EMIs, you can understand if you are eligible for a loan against property. You can use different online EMI calculators to understand how much you must pay as EMIs. It will give you a chance to compare that with your disposable income.
Pay your EMIs on time.
Delayed EMIs can land you in great trouble, like paying penalties. Paying your EMIs will improve your credit score, positively impacting your interest rates. A good credit score of about 750 and above increases your creditworthiness. It means the bank sees you as a credible borrower and opens more opportunities for faster loan approval and quick disbursal. A good credit score also makes it easier to get a loan against your property to get more loans in the future. In the event of a delayed EMI payment, you may have to bear a penalty at your own expense.
Loan Repayment Tenure
It would be best if you choose a tenure that suits your financial condition. A longer tenure means lower EMIs, which are easier and more convenient to pay. Most banks offer a flexible term to their borrowers for an assured return over time. If you can’t afford higher EMIs, you can negotiate with your lender to make the loan last longer. A shorter tenure means you can take off the burden of a loan quickly. Depending on your financial stability and situation, you can choose a longer or shorter tenure. A shorter loan tenure allows you to pay off the loan faster but at a higher EMI.
The convenience of the Loan Application Process
A loan against property indicates that you require a large sum of money quickly. If a bank doesn’t have the convenience of approving or granting a loan, then there is no point in getting one. You must decide who provides quick service with a simple application process. In busy times, no one has the time to stand in a queue to submit the loan application form. So, most banks have loan applications you can fill out online with just one click. Also, ensure you have all the documents ready to take advantage of anything that further delays your loan approval.
Choosing the right lender
It would be best if you did not choose multiple lenders simultaneously, as it will negatively impact your credit score. Choosing the right lender is necessary in case of getting a Loan Against Property. Go with the one that offers flexibility in loan against property eligibility and is accommodating with the interest rates. A reputed lender registered under the Reserve Bank of India is authentic, thus offering you the highest level of borrower security. Make sure you do your homework on shortlisting lenders depending on their credibility, security, speed, and transparency.
Having an insurance backup
If you opt for a loan against property, you must ensure you are covered by good insurance. Insurance gives you the scope to avoid risks in the loan repayment process. Most well-known banks and financial institutions offer good insurance coverage as part of the loan.
LAP rules vary depending on their profile, financial stability, and creditworthiness. A good credit score covers you in these situations and swift your loan approval. Make sure to evaluate your financial goals and find a lender that helps you meet your requirements with little hassles.