5 Rules to Follow When Purchasing a Loan Against Property
Do you need a large amount to meet some immediate expenses at a low-interest rate? If yes, then Loan Against Property (LAP) can be the best alternative among all other financial options. Not just low-interest rate, but it also provides longer tenor and flexibility of usage as you can obtain this loan to fund various needs like bearing urgent medical expenses, business expansion, funding your child’s educational expenses, etc.
However, you must follow 5 rules mentioned below before signing the loan agreement:
1. Borrow as per Your Repayment Capacity
Do you imagine yourself paying LAP EMIs for next many years? If no, it is advised to borrow an amount that you can repay conveniently. Most banks offer 50-90% LAP based on the property’s market value. As per the experts, you should keep your monthly EMI for Loan Against Property between 60- 65% of your total income. Having high monthly instalments can eat a major portion of your income and you might have to compromise on some important financial goals like your retirement plan, child’s education, etc.
2. Go for a Short Tenor if You Can
LAP comes with a flexible tenor of 5-20 years thus, making the EMIs lower. Small EMIs on Loan Against Property may look financially attractive to you in the beginning; however, you may end up paying more interest in the long run than a shorter tenure loan. In case you can’t afford bigger EMIs when you purchase a loan, you may ask your lender to shorten the tenor by increasing EMIs when there is a rise in your income. Doing this can reduce your loan burden.
3. Repay EMIs Timely
Defaulting on or delaying your loan EMIs can land you in trouble. You will not only be charged penalties for non-payment, but irregular repayment can bring your credit score down, reducing your chances of getting a loan in future. It is advised to repay your loan in a disciplined way as any late payment or default will reflect in your credit record.
4. Get Insurance with Big Loans
If you are availing a huge loan amount such as Loan Against Property or Home Loan, make sure you also take an insurance cover. Insurance amount can lessen the debt burden on your family in any unfortunate circumstances. Many banks offer a term cover with the loan to their customers. Also, you can opt for a regular term plan serving the same purpose
5. Read the Fine Print Carefully
No matter how long your loan’s fine print is, it is imperative to read and understand it clearly. Look out the clauses for late payment penalties, foreclosure, processing charges, administration and other additional charges that are associated with your loan. Don’t sign the document until you entirely understand all the clauses mentioned in it.