8 Important Things to Remember Before Taking a Loan Against Property
When it comes to making an investment in real estate, allocating a lump sum could be a tedious task, whereas, finding the right kind of property would be easy with PropReturns. The online platform has a list of verified commercial properties that are up for investment. Just visit PropReturns’ official website select the city and all the information about various commercial properties would be on your screen.
With an increase in the demand for investing in real estate, a large number of millennial retail investors are eyeing commercial properties. Since the real estate investment market demands a huge amount to enter, many novice investors pick the option of taking a loan against their existing property. However, before doing so to get your hand on the best property investment, certain aspects need to be considered.
if you have landed on this page, there is a high chance that you are planning to apply for a loan against property, however, the lack of knowledge and awareness about the same are keeping you in doubt. No worries, this comprehensive guide has rounded 8 essential aspects that you should pay attention to before signing up for a loan against your property. So, before diving deep into the topic, let’s take a brief look at its basics!
What is LAP? Risks & Benefits :
In a country like India, owning a property asset is not only having a roof over the head but a symbol of status. On the other hand, in the past few decades, real estate's large pool has managed to attract numerous investors with its lucrative returns.
The property asset can also be helpful to get some loan for various purposes; from business-related purposes, medical emergencies, to funding a child’s education, weddings, or any other personal needs.
For the unversed, a loan against property, often called LAP, is a loan that you take against a property that you own. A LAP could be taken against residential, industrial, and commercial properties.
Some of the benefits of LAP in India are as above-listed :
1. Tax advantages
Under Section 31 of the Income Tax Act, tax benefits can be availed on the interest amount for a loan against property
Under Section 24 of the Income Tax Act, tax benefits up to Rs. 2 lakhs can be availed on income tax if the loan against property is taken to build a new house.
Flexible loan amount
Competitive interest rates
Longer loan tenure
Different property options and optimal property usage
Risks of LAP
Long time for approval
Multiple checks are conducted
A huge amount of scrutiny from the banks
The bank possesses full authority to sell your property
Things to consider while taking LAP
As now you know the basics of LAP, its advantages, and disadvantages, it's time to take a quick rundown of eight important aspects that one should note before taking a loan against property. They are as follows:
1. Determine the value of the property
As previously stated, a Loan Against Property is issued when the borrower keeps an immovable property (residential or commercial property) as collateral. The bank uses an evaluation method based on the property's age, location, amenities, and other factors to decide the loan amount you are eligible for, and then gives you a loan amount of up to 80% of the property's worth. As a result, the borrower must be informed of the property's value in order to ensure that he receives the maximum loan amount when pledging his property.
2. Check your CIBIL score
The interest rate you receive from a lender on a Loan Against Property (low or high) is determined by your credit score. A credit score is a numerical representation of your repayment history that informs the lender about how you have handled the previous loans and credit card EMIs.
If your credit score is 750 or higher, you will be eligible for a lower interest rate on LAP and will be able to negotiate other terms and conditions with the bank. If you have a bad credit score, the bank will either refuse to provide you with a loan or will give you one at a higher interest rate.
3. Compare the interest rates
It is not required to apply for LAP with the bank where you already have an account. Your loan's interest rate will have a significant impact on the EMIs you'll be responsible for paying over the next 15 to 30 years.
As a result, before applying for a LAP, examine the interest rates offered by several banks and NBFCs. On the other hand, various online platforms allow you to compare the interest rates of different banks and NBFCs under one roof, saving you time and effort. Following the comparison, you can select a bank that offers the lowest interest rate on a Loan Against Property.
4. Check the eligibility criteria
To eliminate the chances of rejection, it is important to know the eligibility criteria of the respective lender before you apply for a loan with it. Note, the eligibility criteria to apply for LAP differs from bank to bank, so check the eligibility criteria by either visiting the official website of the lender or by calling the customer care representative.
5. Loan repayment
The LAP typically has a term of up to 20 years. If you choose a longer repayment term for your LAP, your EMIs will be more affordable, however, you will be paying the interest rate for a longer length of time. If done on paper, such a difficult computation can be time-consuming and prone to human mistakes.
Take advantage of an online EMI calculator before applying for a Loan Against Property to understand the EMIs you'll be paying if you choose a specific loan amount and tenure.
6. Tenure
Contrary to a personal loan, any loan secured by real estate has a longer repayment period. The EMIs are stretched out over a long period of time, and the interest rate is substantially lower. Longer terms result in lower EMIs, lowering the monthly repayment burden.
7. Check process fee and other charges involved
When you apply for LAP with a lender and it gets approved, the lender asks for a processing fee. Usually, the fee goes up to 3% of the loan amount + GST. Meanwhile, some banks charge a prepayment fee, service charges, statutory charges, and even stamp duty.
8. A checklist of documents required for the loan
Applying for LAP involves a lot of documentation as the collateral is involved. Although KYC (Aadhaar Card, PAN Card, Voter ID, Card, etc.) and property documents remain the same for all individuals, income documents may differ as per the nature of work.
Final thoughts :
When it comes to making an investment in real estate, allocating a lump sum could be a tedious task, whereas, finding the right kind of property would be easy with PropReturns. The online platform has a list of verified commercial properties that are up for investment. Just visit PropReturns’ official website select the city and all the information about various commercial properties would be on your screen.
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