Loan Against Property (LAP) is a secured loan against an immovable asset (property or land) as mortgage with the lender. They include a house, office, or a shop. The borrower should be the property owner, and the title should be clear.
Loan Against Property (LAP) is a means to raise large funds at low rates for business expansion, children’s wedding or their education without losing out on property ownership. The interest rates on these loans are slightly higher than top-up loans but lower than unsecured loan options such as personal loan.
However, you should not over-borrow just because you’re eligible for a higher loan quantum and stick to your exact financing requirement so that it’s easier for you to clear your loan in full on time.
If you are planning to take a loan against property, avoid these mistakes:
- Not comparing interest rates
Some people make the mistake of borrowing loan against property without any research. Interest rate of LAP can range between 7.95% and 13.10% per annum based on credit risk assessment, loan amount and tenure opted by the borrowers. Those planning to avail LAP should compare offers from as many lenders as possible and final LAP application should be made with the lender that charges lowest interest rate for the optimal repayment tenure and loan amount.
- Not factoring in processing fees
The processing fees charged by most lenders is 1%-2% of the loan amount. As LAPs are usually big-ticket loans, processing charges may be significant. Thus, loan applicants should factor in processing fees charged by different lenders before submitting the final LAP application. - Not factoring in disbursal time
Disbursal of LAPs takes two to three weeks as lenders have to verify all the property linked documents and undertake a technical study to evaluate the market value of the property before approving the application. Thus, LAP may not be a suitable choice for those having a quick fund requirement. Such applicants should consider going for a personal loan or other loan options which have a comparatively shorter processing time. - Not choosing right loan tenure
The tenure of any loan plays a crucial role in determining its EMI and overall interest cost. Longer repayment tenure can result in lower EMI out, but lead to higher interest cost. The opposite stands true for loans with shorter tenure. As the tenure of LAPs can go up to 15-20 years depending on the lender, select your LAP tenure primarily on the basis of your repayment capacity. opt for shorter tenure if you are sure of repaying your EMIs by the due date and those who cannot should stick to longer repayment tenure for lower EMIs as failing to make timely EMI repayments can attract steep penal charges, adversely impact credit score and future loan eligibility. Borrowers opting for longer tenures can reduce their overall interest by prepaying from their surplus funds in future. - Not factoring in LAP EMI in emergency fund
Financial emergencies such as illness, job loss, etc., can hit anytime, hampering your cash flow, income, and even the loan repayment capacity. To mitigate the financial risk arising from such unforeseen exigencies, borrowers should also factor in existing EMIs in their emergency fund corpus. Ideally, an emergency fund should be big enough and parked in liquid instruments like high-yield savings accounts and bank fixed deposits to cover unavoidable expenses for at least six months.
Key Takeaway
A loan against property is an excellent source of financial assistance during significant personal expenditure or business expansion. It is critical to thoroughly gauge the advantages and disadvantages of loan against property before making the final call.
Apply for a Loan Against Property through MoneyPlus to get a host of benefits such as lowest interest rate, minimal documentation and quick disbursement.
Call us today for free consultation.
