Everyone faces a financial crunch at some time or the other for personal or business use. In such times, taking a LAP loan is worthwhile as it allows you to unlock the value locked in the assets you own.
A LAP loan is a loan against property, a secured loan that you may take against your commercial or residential property. To assess your loan eligibility, lenders often consider your credit history, property value, and salary. However, since the loan involves holding risk to your valuable asset. It is crucial to stay meticulous with the loan procedure and avoid these five common mistakes.
5 Mistakes to Avoid When Taking a LAP Loan
- Choosing a Wrong Repayment Tenure
LAP loans come with flexible repayment terms that you may choose as suitable to your affordability and repayment capacity. The loan tenure you select plays an essential role in determining your loan EMIs and the overall loan cost. If you choose a longer loan term, your EMIs will be smaller, but your interest outgo will be high. Since a LAP tenure may go up to 15 years. You must use a loan against property EMI calculator to select a loan tenure based on your repayment capacity.
Select a short loan tenure only if you are sure you can repay the bulky EMIs regularly throughout the loan term without sacrificing your current financial goals. Those who miss their EMI payments often end up attractive high late-payment charges and other penalties, thereby impacting your credit score and further loan eligibility. For the time being, opt for a longer tenure and reduce the interest outgo by pre-paying the loan whenever possible.
- Not Understanding the Stakes
While looking for a LAP loan, it is essential not to make haste decisions. Understand the stakes involved in pledging your property as collateral. If you fail to repay the borrowed loan. The lender will get the right to foreclose your property and sell it to get their money back. Comprehend the stakes and decide if you can afford to lose that property. Weigh the pros and cons of taking a LAP loan and understand the risks involved.
Note that real estate prices are constantly rising. So, evaluate the loan and ensure that you can repay it within the repayment tenure. Otherwise, you may lose your valuable asset and miss out on the returns you might get from it in the future. Evaluating your property’s worth is also imperative. Look for a lender that determines the maximum value of your property and provides the maximum loan amount.
- Not Calculating Your Eligibility and Preparing Documents
You must meet the lender’s eligibility and documentation requirements to apply for a loan against property. Lenders often look at your age, employment, income, and credit score to measure loan eligibility. You also need to furnish your KYC documents, bank statements, form 16, income tax returns, and property documents to prove your identity, income, and residence. All co-owners of the property must agree to pledge it as an asset. You need to provide the documents in support.
Therefore, it is crucial to calculate your eligibility and prepare the required documents to improve your chances of approval and accelerate the loan process.
- Ignoring the Fine Prints
When you need quick funds, it’s common to ignore the fine print and not give attention to the loan terms and conditions. However, this is one of the gravest mistakes you can make while applying for a loan against property. Fine prints written on the bottom or side of your loan agreement contain some crucial information that the lender does not want to state clearly. These include the additional fees, foreclose charges, late payment penalties, and extra charges you must know before signing the loan agreement.
Reading the fine prints carefully will ensure that you clear your doubts with the lender and stay informed about any hidden charges. If you ignore them, they will come as a surprise and significantly impact your affordability.
- Not Having a Repayment Plan
Once you finalize the EMI amount and repayment tenure using a loan against the property EMI calculator, it’s crucial to make a loan repayment plan and keep a part of your savings to pay your dues on time. Defaulting on loan EMIs attracts heavy penalties and fines. Even before you apply for a LAP loan, make a repayment plan while keeping minimal space for compromise. Besides that, remember the lender will not lend 100% of the property’s value as a loan. You must keep some money aside for a down payment and borrow the minimum amount sufficient to cover your expenses.
A loan against property is an ideal way to source funds when you need money. It allows you to use value hidden in your asset, saving you from paying hefty interest charges for unsecured loans. However, avoid the mistakes mentioned above to make an informed decision, and ensure timely repayment to get the most from your loan.