Today you avail of numerous credit facilities - secured and unsecured. More and more lenders have made accessing these credit options easy. Among these facilities is a loan against property. 


A loan against property is a secured loan where you pledge your property as collateral with a lender of your choice and receive funding in exchange. When you repay the loan, the lender will rescind their rights over your property. 


If you default on your loan, the lender can seize the property to recover the sanction. Given this, you must know the key aspects of a loan against the property before applying. The information also helps plan and optimise the loan to safeguard your assets.


Read on to know the essential aspects of a loan against property and borrow smartly.


Purpose of the Loan Against Property


Traditionally, credit was considered a last resort to achieve a financial goal. This is no longer the case, as many turn to credit facilities to handle their obligations. This includes both unsecured and secured loans, including a loan against property.


In the case of a loan against property, you can use the funding for several purposes. This includes paying for higher education, renovating your home, developing your business, and more. This is also what makes it different from a housing loan, as you can only use this loan for home-related expenses.


Property Type And Value


While you may think that availing a loan against property is only possible with residential properties, it’s not true. In fact, a majority of lenders accept both residential and commercial property for such loans. As such, you can get the funding you need regardless of the property type. 


Although a loan against property is available for residential and commercial properties, the amount you can get depends on the value of the property. Just like a housing loan, lenders have an LTV ratio for these loans, which can go up to 75%. However, it can vary with the lender.


Interest Rate And Other Charges


A loan against property is subject to interest rates and other charges, just like a housing loan or any other credit facility. Knowing these charges before applying is crucial because it affects your borrowing costs.


A crucial thing to remember about interest rate and other charges is that it varies with the lender. Moreover, while a lender may levy standard charges for these loans, the interest rate you receive will depend on your eligibility.


You can improve your chances of getting an affordable loan against property by improving your eligibility. For this, you need to have an excellent credit score and meet the lender’s requirements.


Repayment Period (Tenure)


Loans, including loans against property, are available for a predetermined period that you choose while accepting the loan. Paying attention to the tenure you choose is crucial because it affects your EMI and borrowing costs. A short tenure will mean higher EMI but lower borrowing costs. 


However, a longer tenure can result in reduced EMI but higher borrowing costs. Finding the right tenure will enable you to have manageable borrowing costs and EMI amounts, making your repayment stress-free. Remember, different lenders offer different tenures, so you need to compare and choose the right one.


Monthly Repayment Amount (EMI)


A loan against property is repaid in monthly instalments, just like a housing loan and other credit facilities. Also known as EMI, the monthly instalment amount depends on a number of things. This includes the loan amount, tenure, and interest rate.


Keeping the EMI amount within your budget is essential in ensuring timely repayment and release of your property. You can use an EMI calculator to get an estimate of the EMI amount based on your loan terms.


You can also compare different offers to find the best one and have a seamless borrowing and repayment experience. Today, a majority of lenders offer a free EMI calculator, an online tool that gives accurate estimates within minutes, if not seconds.


Eligibility Criteria


Lenders set eligibility criteria to ensure that the applicant is a low-risk borrower and has the ability to repay on time. If you do not meet the criteria, the lender may reject your application or levy a higher interest rate, increasing your borrowing costs. 


Thankfully, secured loans, like a loan against property, generally have simpler eligibility criteria as the lenders have collateral to mitigate the risks. For LAP, most lenders require you to meet their credit score, age, and income criteria.


With regards to credit score, you should aim to have a score above 750 to get affordable financing. You can also use an eligibility calculator, which is an online tool that gives you an estimate of the loan amount you qualify for. 


This estimate is based on your income, age, and expenses. Using the eligibility calculator before applying will enable you to apply for an amount you qualify for and thus boost your chances of approval. 


Additional Benefits And Services


Today, lenders across India offer additional benefits and services to enhance your borrowing experience. This is also true for a loan against property, where a lender may offer insurance, a pre-approved loan, guidance on property purchase (if applicable), and more.


However, these benefits and services vary depending on the lender you choose. So, be sure to factor in all these benefits and services, as they can add more value to your borrowing and make the whole process worry-free.


Now that you know these aspects of a loan against property, be sure to apply smartly and efficiently. Compare the different offers to get the best deal and get the best from your asset. Use the available online tools to optimise your loan and have a seamless experience. 


Read through the terms and conditions carefully to ensure that you can keep your asset secure and are not blindsided by unexpected costs. Doing all of this will enable you to repay without any stress and eliminate the risk of losing your asset, protecting your financial well-being.


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