'Don't jump the gun', remains the wise phrase which needs to be kept in mind while availing a loan against property (LAP). Your needs for availing quick credit to honour your timely commitments, if any might make you ignorant of certain facts and processes that are followed by lending institutions before granting the loan. It is important as a borrower that you know about important factors determining your loan eligibility and disbursement when opting for a loan against property.
Let us see some of the common oversights which borrowers tend to ignore when availing a LAP product.
a) Interest Rate Comparison: There are many factors which are considered when deciding upon the interest rate charged to consumers. A bit of an online research to compare the rates will help in getting the best rates and repayment tenure timelines.
b) Loan Tenure Option: Since loan against property is a secured loan with a longer duration of repayment as compared to personal loans, a borrower still needs to take a decision on the loan tenure. Loans with longer tenure have the benefits of lower EMIs, but a higher interest cost is associated with longer tenure. Comparatively, shorter tenure loans help in reducing the burden of higher interest cost. Choosing the right tenure is very crucial and depends solely on the repayment capacity and commitments to other financial goals of the borrower.
c) Right Property Value: A borrower might assume that his/her property holds greater market value, but this may not be true. A lending institution will conduct its due diligence to ascertain the appropriate value of your property. If there is an overpriced value declared by the borrower in the application form, the lending institution can decide to reject or put your application on hold. Therefore, borrowers should declare a correct value after checking with appropriate authorities or experts in the field of valuation.
d) Additional charges: As a borrower, one may also assume that apart from the interest rates on the loan against property there won’t be any additional charges. This may not hold true since lending institutions charge additional amount for processing the loan, foreclosure, and prepayment. To avoid any surprises, borrowers need to check on additional charges that would be levied to them on availing a loan against property.
e) Existing loan liabilities: A lending institution facilitating loan to a borrower will cross-check with credit bureaus and other institutions to check if any existing loan is active with the borrower who has applied for a loan against property. Other banking documents also helps the lenders evaluate the existing liabilities. If the evaluation throws light on inconsistency of repayment of existing loans and poor credit score will affect your loan application and might get rejected. Borrowers need to make sure that their credentials on their borrowing is robust and disciplined, and in case of any discrepancies get the same corrected with credit bureaus and financial institutions.
To enjoy a seamless and a surprise-free loan experience, a borrower needs to engage with the lender to understand the process before applying for a loan against property.
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