A loan against property is one of the best forms of secured loans, allowing you to finance some of the more pressing issues at hand, including marriage, education of the children, or even personal emergencies. However, LAP loans aren’t random lines of credit and require extensive levels of validation. Much like a housing loan, even a LAP is more about the income, employment status, and tenure of the financial debt.
Then again, there are five important aspects that every individual, including you, must gander upon, before applying for a loan against property.
- It isn’t all about the property
In case you want to apply for a loan against property, you must understand that the establishment is more about a guarantee and only to determine loan value and eligibility. The process of sanctioning the loan still depends on repayment ability. While banks take a form of security, just to churn out the loaned money, in case of a mishap, the initial premise is just like any other loan and takes you existing liabilities, credit utilization ratio, monthly income, and the family condition.
- Interest Rate isn’t the only Essential Metric
While comparing the loan against property interest rate, as projected by diverse financial institutions, is quite a good headstart, you shouldn’t restrict your search only to this metric. Instead, there are other crucial aspects to consider, including LVT ratio, late payment charges, foreclosure charges, repayment structure, and more. Consider proceeding, if the concerned bank, NBFC, or HFC lives up to your preferences.
- Check the property, in its entirety
A loan against property eventually concerns using the property as the collateral. Therefore, before even planning to apply for a loan against property, you must check the documentation, disputes, if any, and other bottlenecks associated with the establishment. Besides that, if you are aware of the value, do not overleverage to compromise the repayment capabilities. Most importantly, it is desirable to clear the ownership hassles, if any, before approaching for the LAP financing.
- Expect a Lower LTV
Even if you have a prime property, it isn’t advisable to expect a loan amounting to almost 90 percent of the total value. Instead, a good range is to settle for something around 40 to even 50 percent. While the lower LTV might be frustrating if you are looking for a larger amount, it often stops you from overleveraging, which actually is a safe way to go about a LAP.
- No Tax Benefits
Unlike dedicated home loans, there isn’t any tax benefit associated with a LAP. Therefore, regardless of comparing the loan against property interest rate, as provided by different lenders, you wouldn’t come across someone who would promise a tax rebate of sorts.
Before you even apply for a LAP, it is necessary to be mindful of these factors and possibilities. Adherence to the mentioned factors should influence your decision as you must understand the technicalities on display, before applying.