Proper debt management is an essential part of maintaining any credit, primarily high-value secured loan variants like loan against property. It is one of the most demanding borrowing solutions for individuals who are willing to make big-ticket purchases.
If you apply for a loan against property, it would require pledging any of your immovable assets and raise funds against it. This debt instrument provides full liberty to the borrowers to meet an array of financial requirements, whether planned or unplanned.
Since this form of credit requires an asset to be pledged, borrowers need to be well-aware of the repayment and a few other factors to ensure the ownership of the pledged property.
However, to ensure on-time repayment and accelerate a better borrowing experience, one needs to know about the common mistakes when choosing to apply for a loan against property.
Mistakes to avoid while opting for a loan against property –
Being a secured loan variant in nature, a loan against property often charges lower interest rates than other loan options available in the market. Lenders do not pay much attention to the creditworthiness of the borrower. However, this flexibility of approach makes many borrowers ignore some important facets. Following are some of the basic mistakes most borrowers make when they choose to apply for a loan against property.
- Choosing the wrong tenor –
Choosing a suitable tenor is crucial for a borrower as it determines overall interest cost and EMIs. Choosing an extended tenor can result in lower EMIs but higher interest cost. On the other hand, opting for a shorter tenor would increase your EMIs, but the payable interest will decrease. Since the tenor of loan against property can range from 15-20 years depending on the lender, borrowers should select their loan tenor by thoroughly assessing their repayment capacity.
- Failing to compare interest rate –
Ideally, the interest rate of a loan against property is not high due to the presence of collateral. The interest rate may also vary based on the loan amount and repayment tenor chosen by the borrowers. Borrowers who are planning to apply for a loan against property must perform all-inclusive research of available lenders in the market and compare their offered rates. Generally, financiers offer interest rate considering factors like risk assessment, creditworthiness of borrowers, etc.
In this regard, borrowers can take help from a loan against a property calculator to get an estimation of monthly instalments.
- Not submitting proper documents –
Submitting the loan against property documents required diligently can complete the loan application process swiftly.
Also, submitting these documents on time and without any discrepancy can improve loan against property eligibility and allow borrowers to avail better terms.
- Failing to assess actual credit requirements –
It is essential to decide the actual amount that borrowers want to avail. Based on the property’s current market and resale value, the loan against property can prove to be substantial. Moreover, lenders sanction an LTV of up to 75% of the asset’s present valuation. Therefore, it often tempts borrowers to apply for an amount that is more than their requirement. This excessive borrowing increases the financial stress of an individual and affects their credit score.
- Not factoring in loan disbursal time –
Not assessing the disbursal time can be a major mistake while choosing a loan against a property. Ideally, financial institutions need 2-3 weeks to process and verify the documents. Therefore, before approaching a financial lender for a loan application, one must consider this pointer and make informed decisions accordingly.
In this regard, some reputed housing finance companies offer high-loan value and affordable interest along with some lucrative pre-approved offers. One can check their pre-approved offer by submitting their name and contact information.
Besides avoiding these mistakes, borrowers must maintain an emergency fund so that they don’t fail to pay EMIs and attract penalty charges. Hence, if borrowers do not make these mistakes, they can apply for a loan against property and make the most of its benefits.