When money is needed quickly, the typical course of action is to apply for a personal loan from a financial organization. Although obtaining a personal loan is simple, it is an unsecured loan with a much higher interest rate than secured loans, resulting in a larger EMI.
A Loan against property is secured, simple and convenient to obtain. It is less expensive and provides numerous benefits, including tax benefits under various parts of the Income Tax Act. Lenders also offer reasonable mortgage loan interest against LAP. However, there are five rules to follow before taking out a loan of this type:
Take a loan as per your repayment capability
Your outstanding loans’ Equated Monthly Installments (EMIs) must not exceed 65 per cent of your net income. As a result, before applying for a bigger loan against property (LAP) amount, you should think about your repayment capacity.
Select a shorter loan term
In most cases, the repayment duration for a LAP is up to 15 years. A longer payback term may reduce EMI if you choose, which may be appealing at first but you might substantially pay more interest over a longer time. If your present financial circumstances prevent you from choosing a larger EMI, you might be able to increase it when your annual income grows in the future. As per loan amount, tenure, and interest rate, the EMI calculator can predict your EMIs.
Loan payback instalment on time
Lenders often charge a penalty if you miss an EMI payment, which raises the total cost of your loan. Defaults payments also affect your credit score, which lowers your chances of getting a loan in the future. As a result, you must pay your EMI on time to avoid such unpleasant scenarios.
Get insurance when the loan amount is significant
Taking a loan against property is a long-term commitment. As a result, if an unforeseen occurrence occurs during the loan term, getting insurance can be considered a good option and your family members will not face any financial hardship in repaying the outstanding balance. If left unpaid the worse would be to lose their home. It is recommended that you obtain insurance to cover the amount borrowed.
Carefully check the terms & conditions
The loan document is usually large and tedious, and not many people read the entire document. However, one must thoroughly check all the terms and conditions to avoid any unpleasant surprises in the future. Additional charges may apply, increasing the cost of your borrowing. It is critical to comprehend these terms and conditions to make an informed conclusion. You will be required to submit specific documentation to the lenders while applying for a loan against property. The following is a list of standard documents required to obtain a LAP:
- The application form that has been duly signed and filled
- Salary slips, Form 16, and bank account statements are all acceptable forms of proof of income (for salaried applicants). Bank statements, financial statements, and income tax returns are all examples of financial statements (for self-employed applicants)
- Documents proving your customer’s identification, signature, address, name, and birth date
- All documents about the property’s title
- Examine the processing fees
You can apply directly online or visit the branch of your financial institute. You must engage with a well-known and well-respected lender who offers low mortgage loan interest to minimize the cost of EMIs. To make the best decision, check the reviews and comments left by other borrowers. Working with a trustworthy partner is essential since you don’t want your sensitive data and papers to fall into the wrong hands and be misused.