A loan against property offers a high-value credit option to meet emergency financial needs. This credit allows individuals to leverage their property’s equity and avail funds against it.
According to a report, the Indian LAP market predicted a 14% CAGR by FY 2026. Being a secured credit option, the interest rate is affordable. Moreover, RBI’s stance of keeping the repo rate at 4% has made the credit form affordable for potential borrowers.
However, the easy loan availability and its benefits often overshadow the common mistakes individuals make while availing this credit. Neglecting these factors can create confusion and lead one to a debt trap.
What are the mistakes you should avoid during loan against property application?
Here are some common mistakes to avoid while applying for a loan against property –
- Selecting a random lender
The lending market is competitive, where every financial institution tries to lure borrowers with attracting deals. Selecting a lender based on the claims would make the borrowing futile. It is the responsibility of applicants to compare eligibility criteria, terms, etc., before initiating an application. Checking different sites or enquiring about existing lenders would be beneficial. Hence, potential borrowers must research a lending institution, the interest rates, including how to apply for a loan against property.
- Avoiding interest rates enquiry
Every borrowing obligates an individual to follow a steady repayment structure. The lending institution levies interest rate based on a borrower’s income structure and repayment capacity. Often borrowers ignore this factor during emergencies and end up choosing a lender offering higher interest rates.
Therefore, it is vital to compare different lenders and opt for one that levies the most affordable interest rate. In this regard, one can use a loan against property interest rate calculator to make an informed decision.
- Overlooking processing charges
Similar to other loan options, lenders levy additional charges on loan against property. Typically, these charges are about 1-2% of the total loan value; however, the charges can be substantial as the LAP is big-ticket loans. Hence, potential borrowers must evaluate the charges levied, including the foreclosure and prepayment charges.
It would help individuals to estimate the total borrowing expense and plan finances accordingly. This practice would also be beneficial if one opts for a loan against property balance transfer.
- Selecting a wrong tenor
The tenor of a loan has a crucial part in the repayment structure. Technically, choosing a longer tenor may reduce the EMIs, increasing the interest outgo and vice versa. Hence, individuals must choose the tenor that suits their financial capability. One can take the aid of an EMI calculator and decide the right tenor. In addition, checking the types of loan against property interest rate would also be beneficial.
Selected HFCs also offer a loan against property at affordable interest rates and longer tenor. They also extend pre-approved offers that make a loan application simpler and quicker. These offers are applicable on financial products like LAP, home loan, etc. Check your pre-approved offer by entering your name and contact number.
- Neglecting documentation
Submitting the documents needed for LAP is crucial as lenders assess the paper before approving the loan. For instance, lacking documents related to address proof can cancel loan approval. On the contrary, submitting the right papers would improve their credibility.
- Borrowing more than the requirement
Individuals who can meet the eligibility parameters and have a 750+ CIBIL score are likely to qualify for a substantial amount. However, one should borrow only what is required. Availing more than required can increase repayment burden and accumulate debts. These are some of the mistakes that loan against property applicants must avoid before making an informed borrowing. It is suggested to read the terms and conditions before opting for this mortgage loan. This would help borrowers avoid confusion or defaulting situations in future.