What to Ask Before You Take a Loan Against Property
A loan against property (LAP) is a multi-purpose loan you can avail against property that you own. Whether it is a residential or commercial building, lenders will consider up to 80% of the market value of your property.
Things to Ask Before Taking a LAP
Although a LAP is convenient for getting quick funds in an emergency, you need to consider certain things before proceeding. Here are a few things that you should ask before taking a LAP:
# 1 What is the value of your property?
The loan amount will be based on the current value of your property. Whether you need a loan against a plot or a building that you own, you would do well to find your property’s current market value.
Getting a valuation done serves two purposes. Firstly, you can secure enough funds to cover your loan requirements. Also, you won’t have to blindly accept the value of your property that your lender quotes in case they undervalue it.
#2 What are the eligibility criteria?
Eligibility criteria differ from one lender to another. Ask about the eligibility criteria to ensure that you qualify. If you do not qualify on some technicalities, you can rectify it to ensure that you are eligible before applying.
Getting a loan rejected is not only a waste of time, but it can also adversely affect your credit rating. Having a poor credit rating can jeopardise your future loan prospects from other lenders.
#3 What interest rate will you be charged?
Be aware that one of the features of a loan against property is the long tenure. With a slight increase in your LAP loan interest rate, you may end up paying a lot of extra money if your loan tenure is for several years.
Different lenders have different interest rates. You would do well to do a bit of research to identify a bank that offers you the lowest interest rate for your loan.
#4 What are the details of processing charges?
Do not make the mistake of ignoring the processing charges and other fees that the lender may collect from you.
Whether it is a loan against a plot or a building, you have to pay stamp duty. The bank may also have added charges and penalties.
Go through the terms and conditions and ask questions. Many lenders do not highlight charges and fees. For instance, is there a foreclosure penalty? What are the charges in case of late payments? All this adds to the total cost of your loan.
#5 What is the repayment tenure?
The repayment tenure of a typical LAP is quite long and depends on the value of the property being pledged, among other factors. Most banks will offer you a term of at least 15 years.
Because of the long tenure, your equated monthly installments (EMIs) will also be smaller, making your loan more affordable. You should ask the bank about the likely term of your loan before you sign on the dotted line.
A loan against property is a flexible means of getting access to instant cash for various purposes. However, asking questions like how much your LAP loan interest rate will be, the tenure, charges, and so on will keep things in perspective.
Do go ahead with applying for a LAP if you have a property that will serve the purpose. But do not proceed until you have asked the relevant questions to get maximum benefits from a loan against your property.