Loan Against Property – 6 important rules that you should consider when taking LAP
A loan against property (LAP) is a secured loan designed to help you solve your current financial problems. It is a loan that you can obtain by using your commercial or residential property as collateral to the lender. It can be beneficial for your business when you have a requirement of funds, be it for expansion or working capital. It also reduces burden on operating expenses, which can stay allocated for present working costs.
However, before applying for a loan against property, you must first determine the value of your property in order to negotiate a better deal with a financial institution, be it a bank or an NBFC.
Lenders typically consider your age, income, and business profitability when determining loan against property eligibility and the monthly EMI amount you must pay, as well as the loan against property interest rate.
Documents required for applying for an LAP are as proof of age, proof of income, proof of address, and documents pertaining to the property’s title. So, make sure you have all of these documents on hand to expedite loan processing.
Here are 6 important rules to keep in mind, before you go for a Loan Against Property
1. Borrow in accordance with your financial situation:
Take out a loan that you can easily repay. Borrowing an amount that keeps your loan-to-income ratio within acceptable limits is always a good idea. The EMI, however, should not be more than 50% of your monthly income. If your EMIs consume too much of your income, other important financial goals, such as saving for retirement or funding your children’s education, may suffer. Make certain that you do not make this error. As a result, before you take out a loan, use an EMI Calculator to determine the monthly EMI that you will have to pay in the future.
- Keep your tenure as brief as possible:
The relationship between tenure and EMI is inverse. The lower the EMI, the longer the tenure, and vice versa. However, it is always recommended that a person take a loan for the shortest loan tenure possible because the interest burden will be lower.
- Ensure timely and consistent repayments:
It is the most important rule to follow when taking an LAP. Discipline will not only keep your payments organised, but it will also save you from large sums that would otherwise be paid as penalties or extra interest. Furthermore, late payments are reflected in your credit score, lowering your chances of obtaining a loan in the future. You must pay the EMI on time to avoid such unpleasant situations.
- Get insurance with big-ticket loans:
When you get a Loan Against Property, you are taking on long-term debt. It is recommended that you purchase a term plan to ensure that your family member does not face financial hardship in the event of an unfortunate incident.
- Never borrow money to splurge or invest:
Another rule to always keep in mind. Never invest with borrowed funds. Taking on debt for entertainment expenses has the highest risk of trapping you in debt. High-yielding investments, such as stocks, are prone to volatility. If the markets fall or things go wrong, you will not only suffer losses, but you will also be saddled with an EMI.
- Read the small print:
To avoid unpleasant surprises in the future, it is critical to carefully read the terms and conditions. There may be additional fees that will raise the cost of your loan. As a result, it is preferable to be informed rather than regret later. However, at Shubham, we prioritise the customer and inform them of all terms and conditions in advance so that they are not surprised in the future.
Once you have made sure all these rules have been adhered to, you can apply for an LAP, after checking your Loan Against Property eligibility. You can opt from the numerous banks and NBFCs offering Loan Against Property such as Electronica Finance Ltd., ICICI Bank, Tata Capital, Bajaj Finserv etc. Whichever lender you choose, an LAP is sure to fulfil your ambitions and take your business to the next level!