5 Key Things to Consider While Applying for a Property Loan - Loan Trivia


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Wednesday 21 September 2022

5 Key Things to Consider While Applying for a Property Loan

Property Loan

A loan against property (LAP) is a popular secured loan that a financial lender disburses after keeping a legally-owned property of the borrower as collateral or security. The property pledged as collateral can be a piece of land, a rented or self-occupied building, or self-owned commercial premises. It must be noted here that the property loan borrower remains the owner of the mortgaged property. The property simply remains as collateral with the financial lender until the borrower has repaid the whole loan against the property amount.


A loan against property can be a good alternative to personal loans as it does not come with an end-use restriction. In other words, the money can be used to serve all kinds of purposes, ranging from tackling medical emergencies to bearing the cost of education to renovating a house. Here are a few factors to keep in mind when you apply for a property loan.

Loan Amount 


You can borrow a high amount of loan with LAP. However, it is essential to borrow only per requirements. Unnecessarily borrowing a sizeable amount than what is necessary will increase your EMIs needlessly.

Rate of Interest 


The rate of interest on LAP will vary from one lender to another. So, you must compare LAP interest rates offered by lenders before availing of a LAP. Typically, NBFCs offer lower loan against property interest rates compared to traditional lending institutions like banks. You can now enter your desired loan amount, tenor, and get a fair idea of the rate of interest by using a mortgage loan calculator.


Credit Score 

A loan against property eligibility mandates a healthy credit score, preferably one exceeding 750. Hence, a prospective borrower should check his/her credit score before they apply for a property loan. It is wise to clear dues and look for how one can increase their credit score and maintain a decent score in the months that lead up to availing of a property loan.


Associated Charges 

Besides outgoing interest, a property loan borrower must also pay other certain charges such as processing fees, foreclosure charges, late payment penalties, etc. that need to be accounted for when applying for a loan against property. It is in the best interest of the aspiring borrower to sort these with the chosen financial lender beforehand.


Individuals may note that prepayment or foreclosure charges are applicable on property loans. Hence, this factor must be considered as prepayment is one of the ideal ways to reduce loan tenor and, thereby, save up lakhs.

Tax Benefits on Property Loan

Per section 24 of the Income Tax Act of 1961, a LAP borrower can avail of tax deductions up to Rs.2 lakh if they are using the money to purchase or build a new house. You can apply for tax deductions against the interest component of the loan against property. Use a property loan calculator to get a better idea of the tax benefits you can avail of on your loan.


The Final Word

So, these features make LAPs a relatively better option compared to unsecured loans. You can apply for a property loan and tackle your different financial requirements without hassles. However, it is imperative to keep the factors affecting loan against property in your mind before you apply for a property loan. If you default on the loan, you can lose the property to your lender.

Hence, it is better to borrow a property loan only if you are convinced yourself that you can repay it within the given timeline. What are you waiting for?  Apply for a property loan today.

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