5 Common Mistakes Made by LAP Borrowers
A financial crisis can arrive in any individual’s life at any given time. For meeting such needs, most people prefer to opt for mortgaging their residential property and borrow money from a bank or non-banking financial companies (NBFCs). This is called a Loan Against Property (LAP).
Being a common practice, it results in common mistakes with borrowers ending up paying more than they should. MyMoneyMantra will provide you with a complete guide towards some of these errors if you decide to apply for a LAP.
1. Failure to compare all options accurately
People usually fail to do proper research on all the available options before picking the lender. There are two critical factors that every person needs to check thoroughly before Applying for a Loan Against Property.
- Comparison of the interest rates: The most common mistake that an individual could make while taking a Loan Against Property is failing to compare the interest rates. Financial banks, as well as NBFCs, have their own set of interest rates which should be appropriately analysed. Failure in proper comparison would lead to the person paying a considerable amount of interest. For avoiding this common mistake, avoid taking a loan in a hurry and understand all the conditions and the interest rates correctly to avoid paying extra.
- Not reading the prepayment terms correctly: To get the loan money quickly, people fail to understand the prepayment terms thoroughly. Some lenders see this as an advantage by charging a hefty penalty for the same. Before taking the loan, the person must categorise and check the prepayment terms and conditions laid down rather than hurrying into the credit. If you think that you can repay the loan earlier, it is better to opt for a floating interest rate rather than a fixed rate.
2. Neglecting other liabilities
When a financial crisis arises, people sometimes go in for a Loan Against Property. They find their preferred financial institution and compare the interest rates accurately. What they fail to acknowledge is some of their other liabilities may already be ongoing. Some typical examples include an existing loan, credit card bills, or any other pending bills. To avoid this, the person should first be aware of all the liabilities that need to be repaid, and only then should they approach the financial institution for the LAP.
3. Failure in considering your repayment capacity
Taking a LAP will significantly benefit the person by getting them out of one financial crisis, but it may lead to causing another. People usually take credit without considering their repayment capacity which leads to a problem in the future. Instead of blindly going in for a loan, every person should know how much they can realistically and comfortably pay back.
A monthly calculation of how much the person is eligible to pay to the bank should be appropriately done before deciding the loan amount that needs to be borrowed. If a person can spend a healthy EMI every month, they go ahead and take a higher loan which should be avoided. MyMoneyMantra’s easy to use Online EMI Calculator can help you decide the loan amount and compare it with the repaying capacity, before applying for the loan.
4. Considering too many money lenders
There is a significant difference in approaching too many lenders and finding the right lender. Whenever an individual seeks a loan, it brings a query and appears dated on the credit report. Every question reduces the credit score. Several queries within a short period cause the individual’s status as ‘credit hungry.’ This would ultimately reduce the person’s chances to get their loan application approved which may also lead to a higher interest rate.
5. Failing to check the credit report
The loan application will only be approved if the person has a good credit score (mainly in case of unsecured loans). Instead of submitting the credit report in a hurry, do a thorough check and make any corrections if needed. A low credit score would usually lead to rejection of the loan application, and the denial could also bring down the credit score even further. Hence, evaluation of the report is essential before applying for the loan.
To avoid an initial financial crisis, you need to avoid getting into an even deeper one. MyMoneyMantra suggests you do thorough research on all possible factors that are vital for getting LAP and then apply for the loan. If everything is in order, only then can you get the loan and conveniently repay the monthly amount without any problems, present, or future.
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