Availing a Loan Against Property (LAP) can be extremely helpful if you need a large amount of money to take care of some financial needs. In this type of loan, borrowers can avail a large sum by pledging their house or property as a security with the lender. Since a loan against property is a multipurpose loan, the amount availed can be used for a variety of purposes. Be it funding your kid’s higher education, managing wedding expenses, or debt consolidation, a loan against property can help you arrange money for the same. However, there are certain important factors that you must consider before availing a loan against a property. Go through some of these factors below.
Evaluate Your Repayment Capacity Just like a home loan, a loan against property is also a secured loan, wherein a property or house acts as collateral. In case you fail to make timely repayment of the loan against property, the lender has all the rights to seize the property to recover the losses. Therefore, you must evaluate your repayment capacity carefully before availing of the loan amount. By doing so, you will be able to repay on time and prevent defaulting on the loan.
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Choose The Repayment Tenure Wisely
You must opt for a repayment tenure keeping your financial situation in mind. Similar to a home loan repayment tenure, you can choose a repayment tenure that is most convenient for you. Opting for a longer repayment tenure will result in lower EMI, and you’ll be able to repay the loan amount easily without financial strain. However, the longer the repayment tenure, the higher will be the amount you pay as interest. Whereas, by repaying the loan quickly, you will be able to save a significant amount of money in the long run. If your current financial situation doesn’t allow you to choose a higher EMI, you can consider increasing the same in the future with increasing income.
Compare The Rates
You must compare the interest rates offered by different lenders before availing a loan against a property. Since it is a secured loan, you may be able to enjoy a more affordable interest rate as compared to other options such as a personal loan. Moreover, if you have a high credit score, you will be eligible for an even more competitive interest rate. This is because a high credit score would reflect a high repayment capacity, and the chances of defaulting on the loan would be low.
Loan-To-Value Ratio
A loan-to-value (LTV) ratio compares the amount of a loan you borrow against the evaluated value of your property. Make sure that you settle for a lender that offers a high loan-to-value ratio. With leading banks and financial institutions, it is possible to obtain a loan amount between 60% and 90% of your property’s value.
Read The Fine Print
You must read the terms and conditions carefully before availing loan against the property. There may be certain additional fees or hidden charges that can increase the overall cost of borrowing.
Following these unwritten rules carefully can help you make a well-informed decision and avoid any inconvenience later. In case of any queries, do not hesitate to seek help from a financial advisor.