Getting a loan against property is an excellent funding choice when you require a significant amount of money within a short period. Whether you want instant cash for a wedding, business expansion, asset purchase, or another big-ticket expense, a LAP loan unlocks the value stuck in an already-owned property.
Numerous NBFCs offer these secured loans, wherein applicants can quickly receive their loan amount by mortgaging their own property. The collateral provided can be a residential property, a commercial asset, or a piece of land. Thus, a secured loan type helps receive high credit amounts at lower interest rates. However, applicants must consider a few things before applying for this loan type. Here are some tips and advice for finding a property loan easily.
1. Maintain a High Credit Rating
Credit reporting bureaus assign a 3-digit credit score to individuals based on their credit behavior and repayment history. It indicates how responsible they have been with past credit repayments, based on which creditors assess future risk in lending new debts.
Credit rating depends on multiple factors, including EMI payments, credit appetite, credit utilization, etc. Lenders consider those with a credit score above 700 as the best borrowers with the least risk. They easily lend money to them with the lowest interest rates and favorable terms and conditions. While dealing with loans worth several lakhs, a minor difference of even a few percentage points can lead to significant savings.
2. Apply for a Low Loan-to-Value Ratio
The lender evaluates the property’s value and determines the applicant’s loan against property eligibility based on multiple factors. These include commercial or residential nature, location, age, and condition of the property.
Generally, NBFCs offer LAP loans at a specific property price value only. Most lenders will provide a loan quickly at the lowest interest rates if the applicant applies for a lower loan-to-value ratio.
3. Select a Suitable Loan Term
The loan term is an essential factor to consider while applying for any loan. LAP loans come with flexible repayment terms ranging from one to fifteen years. Those who can afford a more considerable EMI amount must choose a short loan term. On the contrary, those who want to keep their EMI amount easy must go for an extended loan term. However, remember, a longer loan tenure increases the total interest outgo.
Use an EMI calculator to estimate loan EMIs and select a tenure with easily manageable EMIs according to your budget.
4. Complete Documentation
A property loan involves a considerable amount of documentation pertaining to the applicant and the property. These include the following:
- Identity proof, like passport, Voter ID card, PAN card, and Driving License
- Age proof, like passport, PAN card, or any other document from an authority
- Residence proof, like ration card, electricity or telephone bill, passport, rental agreement, bank passbook, driving license, or bank statement
- Last 6 months’ salary slips
- Bank statements for the previous 6 months
- Processing fee cheque
- ITR for the last 3 years
- Form 16
- Property papers
- CA attested income statements and financials for the last two years for self-employed professionals
- Last two years’ audited financials for SMEs
Submitting proper documentation is crucial for ensuring loan against property eligibility. It begins the loan process and makes the loan accessible without any delay. Once the lender receives the necessary documents, they verify and evaluate the property’s market value and determine the loan amount. After authenticating the applicant’s credibility, they directly disburse the loan amount into their bank account.
5. Assess Cash Flow and Repayment Capacity
Always select a loan plan carefully after evaluating current finances, cash outflows, income, and financial obligations. Assess your repayment capacity and check the EMI amount to be paid each month. Current income, debt-to-income ratio, and other financial commitments determine an individual’s repayment capacity. If the applicant’s DTI ratio exceeds 50%, the lender may charge a higher interest rate for their loan.
Applying for a loan more than one can afford also increases the chances of loan rejection. Therefore, individuals must keep borrowings aligned to their financial position and repayment capacity.
6. Choose the Right Lender
Before applying for a property loan, compare loan terms and interest rates offered by different lenders. Different NBFCs provide loans against property at varying interest rates. Ask for loan offers from various lenders and pick the best among them with the cheapest loan cost and the best of terms and conditions. Also, compare lenders based on their repayment terms, additional charges, eligibility conditions, customer service, etc.
A property loan is pretty easy to avail. However, applicants may get carried away by the high loan amount being offered and low-interest rates. It is vital to read the loan agreement carefully and select the right repayment term according to your repayment capacity. Don’t forget to factor in the risk factors and the lender’s customer service. Considering these tips and advice will help select the best LAP loan for your requirements.