You may encounter many critical expenses in life that prove challenging to support with your budget. Your likely response is to borrow a loan for funding your immediate needs. If your requirement of money is relatively high, then Loan Against Property is highly preferable option to avail funds. However, you should keep yourself informed with these suggestions given below before borrowing a loan against property:
As the name suggests, loans against property are loans that are provided in exchange for collateral (in this case, construction property or land). To determine an eligible amount of loan that the bank can provide, your property is valued through a bank agent. Moreover, the amount of loan that the bank provides is according to the current value of the property and not a past or potential value. Likewise, you can only get a loan amount of up to 70-80% of the property value. Considering these factors, an applicant should analyze the loan to value (LTV) ratio provided by banks.
Ownership of Property
Before providing a loan, the bank needs to make sure that the property taken as collateral for providing a loan is not under dispute. If it is found that the property papers are not clear about the ownership, then it can be a problem for the bank. Furthermore, if there are multiple owners of the property and all of them do not agree with obtaining a loan, the bank might not approve the loan.
Ability to Repay the Loan
The amount that can be availed on a property loan is high, so it is important that the borrower has required income criteria to repay the loan. Moreover, the bank gets high assurance of consistent EMI payment when the applicant has a high regular income. While the bank has a collateral to get their loan amount back, the first priority is to receive timely EMI payments from the borrower of the loan.
When a bank takes collateral for providing a loan, they offer a lower interest rate as compared to personal loans, that do not require collateral. Loans against property interest rates are lower, it means that the total amount of repayment is small, and easy repayment of the loan is possible.
Time Frame of Repayment
Loans against land or property are approved with long term contracts. Normally, the time frame provided for loan repayment is 4 to 6 years but in case of loan against, the tenure can be extended up to 8 to 10 years. A longer tenure provides the benefit of lower EMIs and it can significantly ease the burden of loan payment.