For arranging funds that can be used without restriction, loan against property (LAP) is a decent option. Because of being a secured loan, LAP is also cheaper than other loans that come without usage restriction. However, to qualify for the loan, the fundamental requirement is to have a property that can be mortgaged. The property must not have any ownership dispute. Both self-employed and salaried individuals are eligible to avail of LAP. After receiving the loan application, lenders assess the value of the property and offer the loan amount depending on the market value of the property. For those planning to apply for a LAP loan,
Certain Do’s and Don’ts are Listed Below-
Compare LAP interest rates:
Never settle for a lender without checking with other lenders for LAP loan interest rate. Comparison between lenders can work in your favour. Another lender may offer a lower interest rate. This is especially important considering the long repayment tenor of LAP. If you are looking to save money on total interest payable, this is your chance. One can also put some effort towards negotiating with the lender to secure a lower interest rate.
Try to keep your credit score high:
A high credit score not only helps in easily getting the online mortgage loan approval, but it also helps in securing a lower interest rate. Throughout the loan repayment period, keep an eye on your credit score. Your credit score should not fall beyond a limit. A bad credit score may make you ineligible for future loans. This can also have a negative impact on your LAP interest rate. If you opt for a LAP balance transfer, your request may also be denied.
Pay off small debts:
Before applying for a LAP, evaluate your existing financial obligations. Your existing monthly EMI obligation should ideally be below 50% of your monthly income. Paying off small debts and credit card EMIs can make this happen.
Choose a reasonable repayment tenor:
Lenders offer LAP for a longer tenor. However, this should not be a reason for choosing a long repayment period. Your financial condition should dictate the selection of the loan repayment tenor. Carry out calculations and see the size of EMI and finalise the tenor accordingly. A long tenor means you have smaller EMIs to pay, which can appear like a lucrative option because of the affordability. However, the cost of the loan can shoot up. Also, you remain under the loan burden for a longer period.
Check all the terms and conditions:
LAP agreement contains important terms and conditions. Many borrowers make the mistake of ignoring the terms and conditions. Going through the important terms and conditions makes borrowers familiar with the miscellaneous charges. Lenders levy charges on prepayment, loan foreclosure, EMI delay and so on. It is important to know these charges. They help you manage your LAP well.
Choose a trusted LAP lender:
Choosing a reputed LAP lender can be advantageous for you. To avail a LAP, a property is required to be mortgaged. The property papers remain with the lender during the repayment tenor of the loan. Once the loan is repaid, property papers are returned to the owner of the property. A reputed lender understands that you have pledged a valuable property. A trusted lender takes care of the security of the papers and completes the property document return process.
Manage the EMIs properly:
Paying the EMIs on time is necessary. While repaying the loan, managing the EMIs can be difficult occasionally. However, adopt techniques to not fall behind on EMI payment. You can create a monthly budget and follow the same to manage the EMIs. Remember that any delay in paying the mortgage loan EMI can attract significant penalty from your LAP lender.
Be prepared for financial emergency:
Loan against property repayment goes on for a long time. During these years, a financial emergency can strike anytime. This can come because of a job loss, various emergency financial requirements and so on. Borrowers should be prepared for these emergencies. You can create an emergency loan fund. Saving some money in this emergency fund means you have enough money to pay the mortgage loan EMI even during a stressful financial situation. Funds to the extent of paying six EMIs in the emergency funds is considered reasonable.
In the End-
The property that you own can come handy for securing a loan. Through availing a loan against property, you can generate funds to meet financial requirements. Because LAP allows borrowers to use the property as per their wishes, individuals can even pledge their most valuable properties, even a residential property, to obtain a loan. Borrowers should be cautious though about the loan repayment. Consistent delays in EMI payment can put their precious asset to risk. Follow the do’s and don’ts mentioned above to avoid problems with managing a mortgage loan.
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