Introduction
To acquire a secured loan, your property or land can act as a powerful form of collateral. Depending on the loan size you require, prior borrowing history, and credit score, you may be able to get substantial funding by placing your property as collateral. However, to ensure a smooth process when applying for the loan, here are some common loan against property mistakes you may want to steer clear of.
Mistake #1 — Choosing The First Lender You See
Shopping around and comparing various loans against property offers is an important step when choosing a lender. Compare interest rates from multiple lenders and select the one that offers an economical rate. A low-interest rate can ensure you have affordable EMI payments and more money to save. Analyze the market to receive the best deals and remember to factor all considerations and parameters to make the right choice.
Mistake #2 — Not Evaluating Your Eligibility
Despite being a secured loan, you still need to fulfill the lender’s eligibility criteria for a loan against property. Lenders will look into your income stream, your age, current financial responsibilities or liabilities, repayment of borrowing history, credit record, and the property value as part of existing market rates to measure your eligibility. If you have a weak credit score, it could prevent you from getting better interest rates or even qualifying for the loan. Besides ensuring that you have a high credit score, keep all your documents at hand, including identity, income and address proof, property papers, and other necessary documentation as specified by the lender.
Mistake #3 — Disregarding The Loan Tenure
The duration of a loan against property is crucial. For instance, a longer loan duration may be easy on your pocket through low EMI repayments. However, if you can repay the amount early, it can be a good idea to do so. Not only will you bring down the interest rate it can also save you money. If you’re looking to save on the total interest outgo, you may want to keep the tenure as low as possible.
Mistake #4 — Not Paying Attention To Repayment Terms And Fine Print
The terms of repayment can be long-drawn, and to save time, most borrowers tend to skip the fine print. But it is crucial to read and understand the repayment terms. For instance, there may be additional fees on foreclosing your loan against property that you may have missed. Perhaps part prepayments may also come with additional charges. Hence, going through the fine print can help you understand how to pick the right lender, look into any hidden fees that could eat into your affordability, and remain cautious on possible expenses you may incur.
Mistake #5 — Forgetting To Factor Processing Fees
Since a loan against property is a big-ticket loan, there may be a significant processing charge attached to it. Look into the processing fees charged by various lenders before you sign on the dotted line.
Mistake #6 — Assuming Quick Disbursal Time
Typically, a lender may take approximately 2 to 3 weeks to disburse your loan against property. The reason for this extended time is to verify all your property-linked documents and evaluate the market value of the property you’re placing as collateral. Lenders need to conduct a technical study before approving your application. Hence, you need to factor in the lengthy processing time before opting for a loan against your property.
Mistake #7 — Not Having A Sound Repayment Plan
Before you choose to borrow, it is essential to forecast your expenses and plan your repayment in advance. Having a sound repayment strategy in place is an important step that you cannot afford to miss. Remember to factor in your current expenses and existing financial liabilities to make sure that the loan you borrow does not burden or overwhelm you with future EMI payments you may not be able to handle. Using an EMI calculator can help you know the total interest you will have to pay over the loan tenure and display the ideal EMI based on your income.
Mistake #8 — Ignoring Loan to Value Ratio
When it comes to lending against your property, financial institutions and banks look into the Loan to Value [LTV] ratio. Lenders use LTV to determine how much they can extend credit to you. This is a critical ratio that you need to take into account as lenders will look into the level of risk exposure they can assume when underwriting your loan against property.
Conclusion
With a stellar credit score, credit history, and excellent borrowing record, you will be able to secure the right funding at a low-interest rate, processing fees, and from your chosen lender. Avoiding the above-mentioned common pitfalls can give you the home-field advantage and savings that run into lakhs of rupees on loan against property that fits your needs.
Disclaimer – ICICI Securities Ltd. ( I-Sec). The registered office of I-Sec is at ICICI Securities Ltd. – ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai – 400 025, India, Tel No: 022 – 6807 7100. Please note, loans related services are not Exchange-traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to the Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
ICICI Securities Ltd. acts as a referral agent to ICICI Bank Ltd. for loans against Property related services & the loan facility is subjective to fulfillment of eligibility criteria, terms, and conditions, etc.
