It’s often true that most of the borrowers do not have much knowledge about Loans against the property. And as a result, whenever they need funds they end up availing personal loans. Well, this can be done when your requirement is low. But for huge requirements, it is always better to go with a LAP or Loan Against Property. Going with LAP not only helps you to get desirable funds but also saves your money on the interest rate.
However, one of the reasons why LAP gets ignored is the lack of knowledge about it in common masses. The majority of the people don’t know how a loan against property can be taken, what is the rate of interest charged for it, how one can apply for this loan and so on. Well, this article is to clear all your doubts about LAP as we will be providing a brief idea about loan against property and some more factors related to it.
Understanding Loan against Property
Loan against property is a secured loan where borrowers get a loan by keeping their residential or commercial property as collateral. By doing this the borrower risks the ownership on his/her asset (property) which is given as collateral. However, if the borrower can repay the loan without any default there is no risk.
But since this borrowing involves keeping one of your most prized possessions at risk, it is important to check for everything and be careful with the process so that there is no room for any errors.
Here are some of the important points that should be taken into consideration before going for a LAP:
Interest rate comparison
Once you decide to take a LAP, the first thing which should be done is interest rate comparison. There are so many lenders offering LAP and to choose one for you it is important to get your favourable deal that too on affordable interest charges. You can compare interest rates between lenders online and choose one that offers you a loan at an affordable rate and EMI.
Comprehend the stakes
While it is necessary to check for the interest rate, it is equally important to understand the worth of the commodity that you are going to pledge to the lender. The real estate market is on a long-term upswing, so evaluate your needs and then place any of your assets as collateral. However, it is also important to evaluate the worst-case scenario and know how affordable the loan against property is for you to ensure that if you do not repay the loan. Knowing the worth of your property also helps you get a good loan amount. However, it is important to know that most of the banks generally provide a loan of up to 75% of the value of the property.
Paying attention to the loan documents and payment terms
Before signing any loan documents it is always advised to read the documents carefully but only a few people complete this process properly. But doing this without proper knowledge can cost you too much in the future. So, do not rush to seal the deal and look for every document properly, if you are not able to understand any term you can always seek help from an expert.
The fine line that you should pay attention to in your loan agreement includes:
Terms for prepayment of the loan, minimum and maximum amount for prepaying, if there is any clause that allows the lender to change the conditions of the loan and the most important one clauses after defaulting on a loan.
Calculating the EMI
Whenever you take a loan, it is very important to know your estimated EMI. This not only helps you to analyse your affordability but also helps you to plan your finances accordingly. You mustn’t miss out on paying the EMIs for the loan that you took against your property. So, do calculate your monthly EMI to pay back the bank and then decide on the amount of loan that you will take against the property. You can use the EMI calculator to do this more accurately.
Documents required to apply for a LAP
- Income Proof
- Last 3-month salary slip
- The latest 3 bank statements
- Form 16 & last year ITR
- Proof of identity
- Proof of address
- Valid papers of the property that you are proposing as collateral.
A loan against property is a great way to fund your bigger cash crunch. But, you should utilize this option wisely and apply for this only when you are sure about the repayment as by opting for it you risk your ownership of the property which is given as collateral.