Important Considerations Before Taking A Property Loan

Are you aware? A loan against property (LAP) is a flexible loan that can be used to cover a range of costs, including those associated with a wedding, further education, business expansion, home renovation, and medical expenses, among other things. The blog discusses key points to keep in mind before submitting an LAP application. Both salaried workers and independent contractors might benefit from a loan against property because many reputable banks and NBFCs provide it as a quick source of capital. You can obtain an LAP at a cheaper interest rate if you have real estate, whether it be commercial or residential, to use as collateral with the lender (as compared to a personal or a gold loan).

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One secured loan that both salaried and self-employed people can use for a variety of purposes is a loan against property (LAP) (a wedding, high education, business expansion, home renovation, medical bills, etc.). With a 20-year term and affordable EMIs, this multipurpose loan makes sure that the payback period is stress-free. There are a few crucial considerations you should make before applying for a loan secured by property in order to avoid any last-minute problems. Read on to learn more.


Before taking out a loan against property, keep these things in mind

Before taking out a loan against property, consider the following important considerations.

Evaluate the Value of Your Property:

A loan against property is offered when an immovable asset (such as a home or commercial property) is retained by the borrower as collateral, as was previously noted. The bank conducts an appraisal based on the property’s age, location, amenities, and other factors to determine the loan amount you are eligible for. And gives you a loan amount of up to 80% of the property’s worth. Therefore, it is crucial for the borrower to be aware of the worth of the property in order to ensure that, when he pledges his property, he receives the qualifying loan amount.

Check Your Credit (CIBIL) Score:

Your credit score, which is a numerical representation of your repayment history, tells the lender everything they need to know about how you have handled past loan and credit card EMI payments. It determines whether you will receive a loan against property with a low or high interest rate from a lender.

Your ability to obtain LAP at a cheaper interest rate and to bargain with the bank on other terms & conditions will increase if you have a strong credit score of 750 or higher. On the other side, if your credit score is low, the bank may decide not to grant you a loan or may do so at a higher interest rate, forcing you to pay more in EMIs. So, if your credit is good, go ahead and apply for an LAP without any hesitation. If not, keep making your EMI payments on time and wait for your credit to improve.


Compare the Interest Rate of Various Lenders:

The Interest Rates of Different Lenders Can Be Compare: Never rush to accept the offer from the first lender you receive, and it is not required to apply for an LAP with the bank where you already have an account. The EMIs you will be required to pay over the next 15 to 30 years will be significantly impacted by the interest rate of your loan.

Therefore, before you apply for LAP, examine the interest rates offered by different banks and NBFCs. You may compare the interest rates of numerous banks and NBFCs under one roof thanks to online portals. Which will save you time and effort. Once you have finished comparing, you will be able to select the bank with the lowest interest rate on Loan against Property & will also be able to save a lot of money.


Understand the lender’s eligibility requirements:

The requirements for applying for LAP vary from bank to bank. For instance, lender “A” might give a loan against property to people who are 21 years old or older. Whereas lender “B” might offer a loan against property to those who are 25 years old or older. Additionally, the minimum income requirements (for salaried personnel) for lender “A” and lender “B” may be Rs. 40,000 and Rs. 50,000, respectively.

Therefore, when you apply for a loan with a particular lender, it is crucial to understand its eligibility requirements in order to reduce the likelihood of rejection and to receive the desired loan amount. By calling the customer service agent or checking the lender’s official website, you may quickly determine the eligibility requirements. Also keep in mind that every time your loan application is denied, a hard inquiry is recorded on your credit report, which lowers your credit score. And every lender who checks your credit score before extending you a loan can see this hard inquiry as well.

The lender may view you as being desperate for the loan and be hesitant to grant you the requested loan amount. If your credit record shows too many hard inquiries as a result of numerous rejected applications.


Analyse Your Loan Repayment Capacity:

Before requesting a house loan secured by your property, you must first evaluate your ability to repay existing debt. You can make a budget using all of your sources of income and outgoing costs to determine an expected monthly installment payment. That will allow you to meet all of your financial obligations.

You can calculate house loan instalments in numerous combinations. Based on your preferred repayment schedules using online home loan EMI calculators. You can get numerous combinations of monthly repayments by simply entering information into the house loan calculator. Such as the required amount for the loan, the interest rate being offered, the selected loan term, and your monthly income.


The EMIs and the Repayment Tenure:

LAP, a secured loan, has a maximum term of 20 years. Your EMIs will be more manageable if you choose a longer repayment period for LAP. But you will be responsible for the interest rate for a longer length of time. You will pay the interest rate for a shorter period of time. If you choose a shorter duration, but your EMIs will be higher. If performed using pen and paper, such a complex computation might be time-consuming and subject to human mistake.

Therefore, utilise an online EMI calculator before you apply for a Loan against Property to understand the EMIs you would be paying if you choose a specific loan amount and tenure. An online EMI calculator is simple to use. Because all you have to do is enter the loan information (amount, tenure, and interest rate).

Let’s use an example to try to understand how EMI Calculation works. For various loan amounts and tenures, the LAP has been calculated here at a rate of 6.70% p.a.


Obtain an estimation of the loan amount you require:

When it comes to LAP. The lenders are prepared to provide you up to 80% of the value of the property. But you must determine how much you actually need. Make a list of the expenses for which you are asking for a Loan against Property. To acquire clarity on the loan amount you require.

For instance, if you are taking out a loan to pay for your daughter’s wedding. You can create a list of the costs involved. Such as the venue, catering, decorations, invitation cards, gifts, clothing, jewellery, etc. To get an idea of how much money you will need. Review your monthly income as well as other expenses when you’ve finished making the list. You will be able to determine the precise loan amount you need in this manner.

Additionally, do not fall into the trap and accept the offer if your projected amount is Rs. 50 lakhs and the bank is willing to give it to you instead at Rs. 70 lakhs. Avoid taking out more debt than you absolutely need to because you will be the one to pay it off. And you may subsequently find the EMIs to be unpleasant.


Understanding the Processing Fee and Other Costs:

When you submit an LAP application to a lender, and it is accepted. The lender will charge you a processing fee. That typically ranges from 3% to 3% of the loan amount plus GST. In addition to this, some banks may additionally impose service fees, statutory costs, prepayment fees, and even stamp duty.

It is crucial that you find out about all of these fees in order to accurately assess the loan’s true cost and make an informed choice.


Recognize the Required Documentation:

Applying for an LAP is a crucial process that requires a tonne of documentation because collateral is involved. While property papers (Aadhaar Card, PAN Card, Voter ID, Card, etc.) and KYC (Aadhaar Card, PAN Card, Voter ID, Card, etc.) may not change for each person. Income documents may change based on the type of job.

If you are self-employed, the lender may require you to submit a bank account statement (last 6 months). Business continuity proof, ITR (last 2 years), etc. If you are a salaried individual, you might be required to submit salary slips (last 3 months), bank account statements (last 6 months), form 16, etc. To avoid any problem or rejection in the future. Make sure you are aware of all the papers needed before you plan to apply for a Loan against Property with any lender.


The Bottom Line on a Property Loan

In conclusion, Loan Against Property is an excellent way to handle financial emergencies in any situation. Because it offers flexible terms of up to 20 years, low interest rates, and no restrictions on how the money will be used. After examining the interest rates and other characteristics of several banks and NBFCs offering LAP. If you decide to apply for LAP, you can do it online using Property Portal.

You might also think about taking advantage of our home loan cashback programme. Numerous advantages are included, including enticing rewards on home loans, flexible repayment options, a longer loan term, cheaper interest rates, a greater loan amount, free financial assistance from a designated relationship manager, a free membership to MB Prime, etc. For more information on the home loan package, visit our section on mortgages.




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