Dos & Don’ts of Applying for a Loan Against Property
Loan against property is an affordable way to ensure availability of funds as and when you need them. This is a secured loan, and you are mortgaging your property with the lender in exchange of a loan. Since you are keeping your most valuable asset with a lender, it is essential to be extremely cautious with such loans.
We bring to you some important dos and don’ts of Applying for a Loan Against Property. Let us start with the things you must do.
Shop around for loan value and interest rate:
This is easily the most important thing that must be done when applying for any property loan. Always talk to agents from two or three different lenders, including both banks and NBFCs. Taking a loan is like buying any other product. You have every right to haggle as much as you want. Remember that even if you can save half a percent on the interest rate, you can easily save thousands if not lakhs of rupees in the long run. Play the agents from lenders against each other and ensure that you get the best deal in terms of interest rate and property valuation.
Choose a highly reliable lender:
It is extremely important to choose a very reliable company to take a loan from. Banks, both nationalised ones like PNB Loan Against Property and private ones, are very reliable institutions. You can be rest assured that they will take good care of your property papers that you keep as mortgage security with them. If you think there is even a slight risk of loss or misuse of your property papers, walk out of the deal there and then. No matter how much hurry you are in, to avail of a loan never ever risk your biggest asset in life to an unreliable counterparty.
Maintain a high CIBIL Score:
Most people think that a high CIBIL score is only necessary to get a loan and that they can let their score slide once they have taken the loan. This is a very incorrect approach to Credit Score. Always remember that all your credit instruments are interlinked through your Credit Score. If you are paying the Loan Against Property on time but let your other loans or Credit Cards slide, this will drive a sharp hit to your property loan interest rates as well. Always ensure that your CIBIL Score remains top-notch.
Keep yourself aware of loan MITC:
Loan MITC (Most Important Terms and Conditions) is a document that all lenders supply meticulously when they deliver a loan agreement, but almost no one bothers to read it. The MITC document contains a quick reference to all common conditions related to loan repayment, pre-closure, loan foreclosure, property repossession, and many other things. If you read the MITC document carefully, you will not even need to call up customer care and wait on long hold for most of the common queries you may have.
Save some loan amount for an emergency:
Just like any other loan, it is strongly advised to keep some money aside from your loan amount as a few months’ EMI to cover your payments in case of unseen emergency scenarios. The norm is to keep EMI of six months with you, and at the very least, you must keep two months of EMIs with you as emergency funds at any time. This will keep you safe in cases of salary delays, job losses, or any other problem which will impact your income. Remember that this money is for an emergency. Car insurance coming due is not an emergency; you should plan for it. Only cases where income stops, should you use this emergency fund to cover your EMIs until you can find a new job.
Now let us look at some of the don’ts related to a Loan Against Property application:
Do not hand over your original KYC documents to anyone:
This goes without saying that today your identity is among the most essential things in your life. Every day people fall victim to identity theft and find out that they are made responsible for something they did not do. This can be simple, like people buying SIM Cards in your name to finding out that someone has taken fake Loans and Credit Cards are in your name, and now you are stuck. Always keep your KYC originals with you and only handle the canceled copies. Do not let anyone take photos of your KYC documents, either.
Do not skip any of your EMIs:
You have taken out a loan and have to pay it off in EMIs, but many times, you will find yourself tempted to skip an EMI. Never give in to this temptation. Even one missed EMI will incur significant penalty charges, and you will have to suffer a massive blow to your Credit Score. Budget for EMIs every month and pay them as promptly as possible. Never skip EMIs.
Do not fall for advance EMI traps:
Many times, loan agents will tell you that you can save interest by paying advance EMIs. Do not fall for this trap. Unless you are spending part of the principal amount in advance, you will not get any benefit at all. Advance EMI is just paying your next month’s EMI early. Keep the money with you and earn interest on it. Unless you are actually paying off some principal amount in advance, it is best to keep EMI money with you as an emergency fund.
Stay away from loan sharks:
Always ensure that you take your loan from government-regulated financial institutions. This means you should only take loans against the property from a bank or an NBFC authorised for lending by the RBI. For instance, an SBI Loan Against Property is a reliable case of authorised lender. Similarly, private banks are also good choices. Loan sharks will seem easy, but they are predatory lenders, and you will risk your life and property by dealing with them.
Never overstep your monthly budget:
If you ever take out a loan, you will feel a lot of stress about repayment of the money. One great way to stay safe from this stress is to make a monthly budget and stick to it. Control what you spend and tell every rupee in your income where it is to go. Remember that if you do not tell your money where it goes, soon it will start telling you where you go. Make a budget, provision for all EMIs & expenses, and stick to it.
Remember, Loan Against Property is an excellent way to get money when you need it for emergencies. However, it is something to be used wisely!
Also Read: Do’s & Don’ts of Applying a Joint Home Loan
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