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5 Pitfalls to avoid while taking loan against property

Romeo@opencomparison.org' By Romeo Cano Sep 19, 2017

Loan against property or LAP is one of the most popular loans when it comes to commercial and residential loans. While it can be a secured loan, there are some mistakes one must avoid while opting for the same. If you are not sure what that is, here are five pitfalls that you should avoid when you are taking the loan.  

Applying for a loan and paying EMI may seem cumbersome, but if some pitfalls are avoided, it can be a blessing. Before you go ahead and take out a loan to start a business or buy a home, it is extremely important to understand the market, the rates, and EMI offered. And of course, the kind of collateral you need to lay down. This will help you evaluate what will work out best for you and what kind of loans you to go for.

One of the most popular loans in the business world right now is the loan against property. This means that you can get the loan you need by putting property as a collateral and borrowing against the value of the same. Keep the below points in mind while opting for a LAP:

  1.    Value of the property

The first thing you need to keep in mind when you are placing your property as collateral is that you cannot get the entire amount of the property as a loan. If your property is worth a certain amount, you will not be able to ask for a loan that is higher than the same. Moreover, most banks and NBFCs do not offer the entire amount but anywhere between 70-90% of the property value as a loan. So, try to keep the amount you desire lesser than the value.

  1.    Rates
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Make sure to do your homework when you are applying for a loan and know the key differences. A LAP has lower interest rates as compared to a personal loan because it is secured. This means that the interest rate and the amount you can get should be higher than that of the personal loans. If your bank is not offering this, then find other financial institutions which offer you the same.

  1.    Ownership

In case your commercial property has more than one owner, you will need to get the co-owner to sign and give the necessary documentation needed, to the bank otherwise your loan is likely to be rejected.

  1.    More interest

You can pay lesser EMI if you opt for a longer tenure of the loan. The tenure can go up to 15 years. While this might be easy in your pocket monthly, you will end up paying a lot more interest for your loan. So if it is possible to pay a higher amount each month, make sure you do so and close your loan quickly.

  1.    Bank custody

You should also remember that your property becomes the bank’s property from the time that you take on the loan. This can be a major pitfall if you fall behind on your payments or you do not pay for a few months.

Once these pitfalls are avoided, loan against property is a good plan for anyone who is looking to expand their business or build a new office. So before you go ahead and take one, make sure you read the finer points of the rules and keep these points in mind as well.

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