Golden rules to follow for Loan Against Property

Whether it is expenses like home renovation, children’s education, wedding or requirement of funds for starting a business or business expansion the first thing which strikes a person’s mind is ‘From where will the money come?’ This question becomes even more troubling when such need of funds arises unexpectedly. If it was well planned 5-10 years in advance then one has the option of building funds through savings and investment, but when such expenses arise unexpected or not with enough time in hand to build funds then only one option remains which is to avail a loan.

Although, when you decide to avail a loan then it has to be supported by identifying the right type of loan for the concerned requirement. The inclusion of technology with financial products has completely changed the market scenario and lending institutions along with aggregators are in a constant state of encouraging potential customers to opt for a loan for almost anything. In such a market scenario it becomes even more crucial to assess which type of loan is the best choice.

 

If the required expense is of similar nature as stated at the start and in case you have a real estate of your own with no running mortgage on it, then it is best to opt for a loan against property. A personal loan can also be taken for such expenses but it carries way higher interest than loan against property and if the required amount is a bit on the higher side than the maximum tenure of 5 years in the personal loan will not suit the purpose.

 

Even though loan against property may be a good option in your situation but still some crucial aspects in its regard cannot be ignored.

5 Golden Rules for LAP

  1. Keep Tenure as Short as Possible: Loan against property provides flexibility with tenure having the range of 5-15 years, in few cases 20 years. Stretching the loan for a longer period may look a good deal on the surface with low EMI but in the long run, you will end up paying too much interest. So keep the tenure as short as you can and in the future ask for reducing it further if your financial capability increases.

 

  1. Timely Payment of EMI: Delaying or defaulting on EMI is something you need to avoid at all cost. It not only attracts a penalty but also brings your credit score down and reducing your creditworthiness. A low credit score will cause you difficulties in the future to avail a loan.

 

  1. Borrow Within your Capacity: Banks offer maximum 65-75% of the property’s value as loan. In case your requirement is less than do not get carried away to avail extra amount. Make a proper budget and assess how much EMI you can afford and do not touch that limit to avoid financial difficulties in the future.

 

  1. Insurance of Big-Ticket Loans: In case you are availing high amount of loan then do get the insurance cover for it to save you of the debt burden during unfortunate events. Opt for regular term plan instead of reducing term plan to continue the cover even after the loan is repaid. It will cover future loans as well.

 

  1. Shop for Better Rates: Do not shut your eyes after availing the loan keep looking for better rates, as in case of long term loans changes in rules, policies, repo rates result in fluctuation of the interest rate as well.

 

Following the above-mentioned rules will keep you away from landing into a financial crisis due to poor management of loan against property and even assist you in reducing the interest amount you pay for the borrowed sum.