With the number of Covid-19 cases gradually coming down and regional lockdowns easing along with opening of the business markets, the need for finances or capital towards personal or business commitments will start seeing an uptick in credit demands from individuals and self-employed people.
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. Borrowers could use an alternate way of availing a loan by applying for Loan against property (LAP), a secured form of availing large-ticket loans for a long-term tenure by attaching the property as a collateral with the lender.
Before thinking of applying for a Loan against property (LAP), it is prudent and important to understand few crucial product information:-
Property Valuation: As the term suggest, the lending institution (Banks, NBFCs, HFCs) will evaluate the market value of the property as per the current market rates. Basis the evaluation and proper documentation submitted by the borrower, the lender will sanction the loan amount of or up to 70-80% of the property value. The property value differs from lender-to-lender.
Interest Rates: Though the interest rates for Loan against property is much lesser than Personal Loans, it is always advisable to do a market study of interest rates comparison being charged by different lending institution and not rush into the process to quickly avail a loan.
Tenure of the loan: One of the key features of Loan against property is the long duration or the tenure extended by the lenders to the borrowers. The loan tenure differs from lender-to-lender. Some offer LAP for up to 15 years and some may extend the tenure till 20 years. As a borrower, you need to strike a balance between your tenure and EMIs. If you decide to opt for floating interest rates, the compounding factor comes into the picture and might affect your monthly EMIs if you opt for longer loan tenure.
Processing Fees: Lending institutions charge loan processing fees as per their terms and conditions. The range may start from 0.5% of the sanctioned loan amount or have a minimum/maximum fix-cap amount. And hence, your decision should solely not be based on the interest rates being offered but also take into consideration the processing fees that is attached when availing a LAP.
Property Ownership: As the term suggest, lending institutions can turn down your loan application if the property that is being pledged with them is disputed or the property documents are inconsistent and incomplete. Factors such as multiple ownership of the property is considered riskier if all the joint owners are not in favor of obtaining a loan. Hence, to avoid longer loan disbursement time, one needs to ensure robust property documentation and consensus of all the joint owners.
There are other host of factors too which are equally integral and crucial to keep in mind when applying for a LAP. This includes credit worthiness of the borrower, penalty charges, foreclosure charges, physical structure of the property and whether the property is currently leased etc., all come into the play when the lender is evaluating your loan application.
Therefore, to ensure that your loan disbursement is quick and free from any hurdles, a backend exercise of evaluating the products offered by lenders and proper property documentation will work your way in availing a Loan against property.
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