Factors To Consider Before Taking a Loan Against Property

Some financial emergencies can be more demanding than others. Due to the amount constraint, meeting the obligations by taking a personal loan might be challenging. Most financial institutions offer a personal loan of up to INR 25,00,000. However, a loan against property can fetch you a much higher amount, depending on the property’s value and your repayment capacity. It is a secured loan that allows you to borrow money by pledging your property as collateral. 

It’s an ideal option for those who need a large amount for various purposes such as business expansion, education expenses, or medical emergencies. However, several factors must be considered before applying for a loan against property. So, let’s delve deeper into what a loan against property is and the crucial factors to consider.

What is a loan against property?

A loan against property is a secured loan offered to people who can pledge property as collateral. Real estate assets and commercial properties are eligible for collateral. The loan amount provided is highly contingent on the property’s current market value and the borrower’s repayment capacity. The interest rate charged on a loan against property is usually lower than what’s charged for a personal loan. However, other critical factors determine the interest rate, including the borrower’s credit score, repayment capacity, income, etc. 

Key considerations for a LAP

Let’s dig deeper into some critical considerations for a loan against property. 

• Loan amount

The loan amount is among the most crucial factors to consider before applying for a LAP. The eligibility for a loan amount is highly contingent on the property’s value pledged as collateral. Generally, lenders offer up to 60-70% of the property’s market value as the loan amount. Therefore, before applying for a loan, you must determine the amount you require and ensure that you are eligible for the loan amount. Applying for a higher loan amount will invite additional interest charges. Therefore, only apply for what you need. 

• Interest charges

One of the most significant advantages of a loan against property is the low-interest rate. The interest rate on loan against property is typically lower than those for unsecured loans. However, the interest rate may vary depending on factors such as the loan amount, tenure, and credit score. Therefore, it is essential to compare interest rates offered by different lenders and choose the lowest one.

• Eligibility criteria

It is essential to check the eligibility criteria before applying for a loan against property. Most lenders have specific eligibility criteria based on age, income, credit score, and property value. You must meet the lender’s eligibility criteria before applying for the loan. Otherwise, it can lead to a delay or rejection of your loan application. 

• Repayment tenure

Choosing the right repayment period is critical for your financial well-being. The repayment period for a loan against property can range from 5-15 years. It is essential to choose a repayment period that suits your financial situation. A longer tenure will result in lower monthly installments, but you will end up paying more interest in the long run.

• Credit score

Your credit score reflects your creditworthiness in the market based on your credit history. It plays a significant role in determining your eligibility for a loan against property. A high credit score increases your chances of getting a loan at a lower interest rate. Therefore, maintaining a good credit score before applying for a loan against property is essential.

• Loan processing charges

Most lenders charge a processing fee for a loan against property. The processing fee can range from 1-2% of the loan amount and has to be borne by the borrower. It is essential to consider the processing fee while calculating the total cost of the loan. Comparing loan offers based on only interest rates won’t get you the best deal. 

• Foreclosure fee

Foreclosure charges are the fees the lender charges if you decide to repay the entire loan amount before the end of the loan tenure. Some lenders may not charge foreclosure fees, while others may charge a percentage of the outstanding loan amount as foreclosure charges. Therefore, it is essential to consider the foreclosure charges before taking the loan.

Final words

A loan against property is an excellent option for people with high-value assets to pledge as security. You can borrow a high amount at a lower interest rate. There are no restrictions on the fund’s usage. However, it is crucial to consider factors such as eligibility criteria, loan amount, interest rates, repayment period, processing fees, foreclosure charges, etc. Apply for a loan against property with Fullerton India today.