Despite the economic crisis in 2020, there was a substantial amount of growth in the loan market on the back of reduced interest rates, consumer-focused schemes launched by financial institutions, etc. According to recent reports, the Indian loan against property market is expected to grow at a CAGR of more than 14% and reach $857.87 billion by FY26. The key reason for this particular segment’s growth was instant funding requirements for both business and personal reasons.
The no end-use restrictions feature of loan against property enables borrowers to utilise the funds for anything from meeting cash flow requirements to covering medical emergencies. However, before getting into the process of availing this loan, certain aspects should be taken into consideration.
Necessary things to keep in mind before availing LAP
This particular loan variant involves pledging your immovable asset as collateral and obtaining a sizeable amount against that. Since you are keeping one of your prized possessions at risk, it is advisable to be aware of all the relevant aspects associated with a loan against property. Consider going through the following factors before getting into the loan application process:
- Have all the documents prepared
Even though the loan disbursal process for LAP is relatively faster than other loan variants, the rigorous documentation procedure takes quite a long time. Both the loan against property and home loan eligibility criteria are lenient. However, financial institutions ask for specific documents like bank account statements, property documents, etc., before sanctioning the loan. Keep all the necessary documents handy to acquire quick approval.
- Interest rates
Due to its secure nature, the rate of interest is inevitably lower in the case of a loan against property. However, keeping your credit score high and having a decent repayment track record automatically helps to negotiate with lenders, lowering such rates further and making your monthly instalments feasible. It is advisable to keep your CIBIL score near 750 or above to claim the best interest rates from lending institutions.
- Compare different lenders
Since the obtained amount is quite high, borrowers should choose the repayment tenor wisely so that handling the monthly liabilities does not get difficult after a point. It is advisable to compare different lenders and interest rates before making a decision.
Choose the loan against property tenor according to your repayment capacity so that it does not get difficult to repay such a high loan amount. Usually, a longer tenor helps individuals to get fast approvals, affordable EMIs, and less time consumption during the documentation process.
- Loan to value ratio
In the case of both secured and unsecured loans, factors like interest rates, LTV, EMIs, etc., are mostly dependent on lending institutions. Since it involves obtaining a bulk amount to utilise for different reasons like covering your child’s education, handling medical expenses, etc., one needs to research well before getting into this.
Compare private and public financial institutions to check how much LTV they are offering, factors that influence their LAP and home loan interest rates, etc., before choosing one.
- Take enough buffer time
From analysing your mortgaged property’s market value to checking the documents, the process often gets lengthy due to all these. Although the loan disbursal hardly takes a few days to complete after the evaluation, it is advisable to calculate and keep some extra days in hand before you need the proceeds.
Apart from these, there are certain other aspects individuals should keep in mind to manage their monthly liabilities smoothly. Like home loans, loan against property does not offer significant tax benefits, which can be a challenging prospect.
Additionally, loan against property processing fees, foreclosure charges, pre-payment charges, etc. generally vary from one financial institution to another. Instead of limiting your research to interest rates, consider acquiring detailed information regarding all these before getting into the application process.