Big-ticket expenditures such as a wedding, children’s higher education, business expenses, or a home renovation can be hard to fund. One of the best ways to raise money for such expenses is to avail of an online Loan Against Property (LAP).
A Loan Against Property, as the name suggests, is a loan that is secured by your residential or commercial property. Since the loan is secured, a Loan Against Property can provide a large loan amount at a relatively low-interest rate with a long tenure.
If you’re thinking of availing of a LAP or a property mortgage loan, here are some of the factors that you need to consider.
As mentioned in the introduction, a Loan Against Property can only be availed by mortgaging your residential or commercial property with the lender. To understand the amount you will be eligible to receive while opting for Loan Against Property, you will need to know the value of the property that you’re going to mortgage. As a rule of thumb, lenders are willing to lend up to 80% of the value of the property to the borrower, with the proportion slightly varying from lender to lender.
While processing the loan application, the lender will evaluate to determine the value of your property. This is done by taking into consideration the age of the property, the location of the property, the size of the property, the amenities it offers, and so on. Overall, it is a fair process that takes into consideration every factor that would affect the market value of the property.
Before applying for a LAP, you will need to determine if you’re eligible for such a loan, otherwise, you may be wasting your time. The eligibility criteria are usually provided by the lender on their website. You can also call up the customer care support team of the lender for assistance in this case.
Here is an indicative list of the kind of factors that affect eligibility:
Your credit score is a score provided by CIBIL which determines how credit-worthy you are. If you have a high CIBIL score, then that means that the lender will be more likely to lend you the money. The CIBIL score is calculated using several factors such as your credit history, your net worth, and so on.
A good credit score is any number above 750. In case you have a low CIBIL score, you can improve it by starting to pay all your credit dues absolutely on time. Remember that if you pre-pay your credit, then it may adversely affect your credit score. A low credit score might mean that your loan application is rejected, or you may have to pay a higher interest rate.
In case you have a good credit score, then you may be able to negotiate a lower interest rate from your lender. Further, you may also revisit the other terms and conditions with the lender.
As mentioned earlier, you can borrow up to 80% of the value of the property that you mortgage. However, the question remains, how much do you need to borrow? You should not borrow more money than you need since that will unnecessarily increase your interest payments.
Hence, before you make a loan application, you need to calculate the exact amount that you need. For example, if you’re borrowing money to pay for a wedding, then you need to calculate the various expenses involved in the wedding such as the wedding venue, the catering, the travel expenses, the decorations, the gifts, and so on. Once you have determined your wedding budget, you will be in a better position to determine a workable number, which will help you in availing an online Loan Against Property.
Since a property mortgage loan is a secured loan, you will need to submit relatively more documents when compared to an unsecured small loan. Here is an indicative list of the kind of documents you should collate for the loan application process:
An online Loan Against Property can be a great way for you to finance large expenditures. The secured nature of the loan means that you get better terms and conditions. The loan application for a property mortgage loan is generally hassle-free and you receive the loan amount within a day of the loan being sanctioned.
A loan against property or LAP can be an excellent alternative to a personal loan. It can help you access finances in the hour of need and meet your various financial requirements.
A loan against property or LAP is a secured multi-purpose loan given by lending institutions like a bank or non-banking financial institution (NBFC) to a borrower in exchange for holding their property as collateral.
Availing a personal loan might seem challenging due to stricter underwriting policy by lenders because of the unsecured nature of the product and the possibility of future Covid-19 waves.
Have you ever come across the financial term Loan against property? Did it make you wonder what does it mean and how is it different from Home Loan?