Due to the uncertain financial conditions, it is expected that the number of individuals applying for a loan is going to increase steadily after the lockdown is lifted. As the economy might take a few months to reach the pre-Coronavirus levels, it is essential to organize your finances properly in the meantime. One of the necessary steps that you must take is to explore alternate sources of finance that can help you tide over these challenging times. There are various types of loans available for you to select the most suitable option from, but picking the cheapest option holds the key here.
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Loan against property, popularly known as LAP, is one of the cheapest forms of loans available in present times. As a matter of fact, interest rates applicable against a LAP are next only to Home Loan Interest Rates. This is due to the fact that a Loan Against Property is secured against the mortgage of a property. Therefore, this facility is only available for individuals who own a property. Here are some of the key features of a Loan Against Property that makes them a popular option amongst borrowers:
Ever since the era of transparency has been ushered in the financial services sector, financial institutions have been strictly following the specified eligibility criteria while deciding on loan applications. As a result, it becomes important for you to avoid the most common mistakes when you are seeking a Loan Against Property.
Here are the 7 most common reasons why applications for Loan Against Property are rejected and how you can avoid the loan rejection:
Type and age of the property: One of the foremost reasons for rejection of a LAP application is the issues with the property. Most financial institutions do not accept vacant plots for a Loan Against Property, as the risk involved in these cases is significantly higher. Another key issue that leads to rejection of the application for LAP is the age of the property. Any property wherein the construction is older than two decades is viewed as risky by the lenders. For many such properties suffer from various structural damages. So, before applying, you should renovate the structure to satisfy the lender regarding the safety of the property.
Incomplete property documents: This is a major issue with LAP applications wherein the applicants do not have complete property documents. Financial institutions require all the documents pertaining to the ownership of the property, including the complete chain of ownership, property tax receipts, mutation certificate, etc. This allows them to verify the ownership of the property and also understand if there are any legal issues involved. In case you are unable to provide the documents, the application will get rejected. So, make sure you have all the property documents in order to avoid rejection of the application.
Inadequate income: Lenders have extremely strict requirements in terms of the monthly and annual income of the applicants. This is done to ensure timely repayment of the EMIs as Loans against Property are usually for high-value amounts. In case your income does not meet the criteria specified by the lending institution, the application will get rejected. For instance, if you apply for a Kotak Mahindra Bank Loan Against Property, the bank requires you to have a minimum monthly income of Rs. 40,000 if you are a salaried individual and annual income of minimum Rs. 1.80 Lakhs, in the case of self-employed individuals and professionals.
Eligibility Criteria: Another common reason for rejection of LAP applications is the non-compliance with the eligibility criteria specified by the lenders. Financial institutions are very particular about these requirements and require the applicant(s) to comply with them completely. For instance, if you apply for a Deutsche Bank Loan Against Property, you must be at least 23 years old but not more than 65 years old and should have a gross annual income of at least Rs. 5 Lakhs to be eligible.
Lack of job stability: Lenders want the borrowers to have a stable source of income as it significantly reduces the chance of default. If you have been changing jobs frequently, without any specific reason, then your application for LAP will be rejected. Lenders usually require the applicant(s) to have a minimum work experience of three years with at least one year with the present employer, in case of salaried employees. In the case of self-employed professionals and businessmen, the business/ practice must be running profitably for the last three years.
Poor credit score: Like all other loans, lenders require applicants to have a good credit score to be eligible for a LAP. Ideally, you must have a CIBIL score of 750+ to be eligible, though the CIBIL Score of 700+ is usually acceptable in case of a LAP as it is a secured loan. So, you must keep a tab on your CIBIL score and ensure that it stays above the required threshold at all times. This can be achieved by checking your CIBIL report periodically, identifying the issues, and getting it updated accordingly.
Legal or Technical issues: Another reason for rejection of LAP applications is the legal or technical issues with the property. For instance, some areas are blacklisted by financial institutions. If the property is located in a blacklisted zone, the application will be rejected. Then some properties are listed on the demolition list of the civic authorities; it is also a red flag for lenders. Moreover, some applicants fail the field verification process that eventually leads to rejection of the application. You must look out for such issues and address them before moving your loan application.
Now that you know about the major reasons behind the rejection of a Loan Against Property application, you can address these issues before applying for the loan and thereby improve your chances of approval.
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