Check THESE 5 Factors Before Taking a Loan Against Property

One of the most trusted ways of securing funds for various needs is Loan Against Property (LAP). This can be helpful for business expansion or medical emergencies or even educational purposes. But, before taking a loan against property, here are the five factors you must consider beforehand.

5 Factors Before Taking a Loan Against Property

1. Understanding Loan Against Property

Firstly, you need to know what a loan against property is. It is a secured loan where you can use your residential, commercial, or industrial property as collateral for funds. The loan amount is calculated by the market value and the lender’s or specific bank’s eligibility criteria. This type of loan has lower interest rates comparatively due to the security of the collateral to the lender.

2. Property Valuation

The property that you give as collateral will be evaluated by the lender again to fix the market value. Various factors, such as location, condition, and legal clarity of the given property, play a crucial role in the process. So, it is important to ensure that the collateral property has clear ownership and no legal problems to stay away from any further complications.

3. Loan Eligibility Criteria

Different lenders hold different eligibility criteria based on their guidelines. They consider your income, credit score, and repayment capacity in general. A good credit score and steady income can increase the chances of approving your loan. This also requires various documentations like proof of income, property papers, and ID proofs.

4. Repayment Terms

LAPs offer flexible repayment options where you can choose the term period. But you need to evaluate your financial stability and steady income before choosing a repayment time period. Longer tenures often end up in smaller EMIs but higher overall interest costs. While shorter tenures reduce interest burden, they require higher monthly payments.

5. Risks Involved

If you choose to make your repayment default, you are giving the ownership to the lender. Most importantly, always have a repayment plan to save your asset. Borrow only the needed amount and be ready to pay it without breaks.

ALSO READ: Is a Student Loan Worth or a Financial Trap?: Pros & Cons