Need funds to expand your business or pay for your child's education? Your residential or commercial property including houses, offices and land, can come to your rescue. You can unlock the equity in your asset by mortgaging it to avail a loan against property.
A property often signifies high value of investment. Hence, it is prudent to exercise caution before pledging your asset for any kind of loan. As a borrower, you should be wary of these common mistakes before taking a
loan against property -
- Not comparing interest rates
Research, compare and decide. This is the golden mantra for choosing any
type of loan. However,where a collateral is involved, you should be careful while assessing whether or not you are picking up the best bid in the market. Since loan against property is a
secured loan, the interest rates and other charges arelow as compared to
unsecured loans. Also, with number of financial institutions available, it makes complete sense to compare the interest rates using a loan comparison platform. The following parameters typically influence the interest rates -
- Your financial history and current credit score
- Loan tenure
- Repayment capacity
- Type of lender
- Loan terms and conditions
- Nature of property
- Your ability to negotiate with the lender
- Market conditions
Choose a lender who can offer interest rates and the loan terms that are conducive for your financial health. With a good credit history, you will be able to negotiate and reach a desired rate.
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Rules To Follow While Taking A Loan Against Property - Not paying enough attention to the loan documents and payment terms
While you are always advised to read the documents carefully before signing the dotted line, few do their due diligence properly in this regard. Do not rush to seal the deal and look out for the following details carefully -
- Hidden fees.
- Terms for prepayment of loan - minimum amount for prepaying, number of times it is allowed in a year, etc.
- Any clause that allows lender to change the conditions of the loan.
- Clauses after defaulting on a loan.
- Not making a repayment plan
Once the EMI is finalized, make a repayment plan and chalk out a part of your savings to ensure timely repayment of the dues. Defaults may attract penalties and heavy fines. Make a financial plan and keep less room for compromise. Additionally, bear in mind that the lender will not finance the entire value of your property. You will have to keep aside some amount of funds for down payment. Do not opt for a higher amount of loan if you think that you are not in a position to pay off the loan.
ALSO READ: Loan Against Property For Businesses - Not preparing for the prerequisites for loan approval
Having a property does not automatically make you eligible for a loan. Many times, the loan applications get rejected because the borrowers are underprepared. The following pointers will help inensuring loan against property eligibility -
- Keep the documents related to your property ready.
- Ensure that your credit history is good.
- Pay off the pending billsand credit card outstanding amount, if any.
- Keep a sound prepayment plan ready.
- Make room for buffer time by taking into account the disbursal time.
- Not taking into consideration other liabilities
Take a note that apart from
EMI, a financial institution may have hidden fees such as processing charges, legal, conversion,
and inspection and documentation fees. As a default will result in the loss of property, consider any other liabilities before applying for a loan against property. Liabilities may include medical fees, EMIs of any other loan and business expenses that require major cash outflow.
ALSO READ: Loan Against Property vs. Personal Loan To conclude
Nowadays, many lenders are offering favourable terms that are conducive for your business. The financial landscape has matured over the years to make the procedure quick and less cumbersome. Financial institutions are offering customers flexible terms and high amount loans against properties, including unconventional ones such as hospitals, vacant plots, schools and colleges.
