Loans Against Property (LAP) are secured loans where you pledge your residential or commercial property as collateral. This means that banks have the margins to offer good interest rates and longer loan durations. Banks will lend anywhere between 65 to 70% of the market value of property. These loans are offered on floating interest rates for periods going as far as 15 to 20 years.
These Loans Against Property are available for personal usage as well as for business purposes though some banks may deny the loan if they conclude that money will be used for speculative purposes.
Being the largest bank in India, the State Bank of India has a large number of choices for those who want to apply for a loan against property. These property loans are available for a variety of customers, i.e., from Rs 10 lakh to Rs 7.5 crore, depending upon customer profile and property in question. SBI will lend money to both self-employed individuals and salary earning individuals.
The main advantage of SBI Loan Against Property is its unbeatable processing charge. SBI levies one percent of the borrowed amount as processing fee, subject to a maximum of Rs. 50,000 plus taxes. No other lender in India offers such a good deal on processing charges.
Many times, you will come across people whose loans were rejected because of the bad CIBIL score. The banks want to lend to people who they are sure will return their loans. When you apply for Loan Against Property, the bank will ask you for many documents, including your address proof and income proof. Based upon these details, they find out your Credit Score, which is offered by the Credit Information Bureau (India). This score is a three-digit number given to every borrower depending upon many factors like how well they are repaying their current EMIs, have they missed EMIs, how much credit they are eligible for along with patterns of credit utilisation in the past.
The banks and other lenders use this CIBIL score to identify and judge if a person who has asked them for a loan will be able to repay the loan and will not default in EMIs. The score can be used to predict bad debt-related risks for as long as one year. Credit score above 800 mark is considered excellent, and banks offer the best deals to these people. A rating below 800 but above 650 is considered acceptable by most lending institutions. A credit score below the 650 is generally considered to be too low, and banks will be hesitant to loan out to people with these scores.
Additional Reading: How to improve cibil score immediately?
Considerations for borrowing Loan Against Property when you have low CIBIL score:
1. Be ready for lower loan amounts: If you have suffered in terms of your CIBIL score, you will also be subject to the problem that banks will not be ready to lend you as much as they will be ready to lend to people with a higher credit score. This means that other customers will be able to borrow as much as 70% or even more of the value of the property they pledge. When you apply for Loan Against Property, you will be stuck to a much lower borrowing limit. Perhaps as low as only 55% of the property value. You can discuss with the loan aggregator to see if a better deal can be made available.
2. Be ready for high-interest rates: People who have the best Credit Scores will always get the best Loan Against Property Interest Rates. Commonly published interest rates are for people who have an acceptable range of credit score. Banks will always charge the highest interest rates to the people who have the lowest credit rating that they can lend on. In fact, in many cases, you can expect that people with low CIBIL score will always get at least 3% to 5% higher interest rates than those with a good credit score. Again, try to negotiate with the lender to see the best deal you can get.
3. Be ready for high processing charges: Low credit scores also mean that banks and NBFCs will charge you very high processing fees. Lenders often do a lot of extra reviews and due diligence for people who have a low credit score. After all, they have no incentive to lure people who have low credit score. On the other hand, they will always offer the lowest processing charges to people with good credit score because they want to lend to people who have a better record of repayment.
4. Be ready for longer processing time: As discussed above, since the bank is going to do a lot of checks and deeper due diligence to determine if they should lend to you or not, the overall processing time will take much longer. While people with good credit can get their loans approved in a matter of days, rarely more than 1 week, people will low credit score will have to wait for around two to three weeks before their loans get approved. It is best to keep in touch with the lender over this period and get regular updates on your application status.
5. Be ready for extra documentation and paperwork: As discussed, people with a good credit score can get loans with minimal documentation. People who do not have that good credit score, however, will be required to submit many more documents, for example, documentation related to property taxes, utility bills multiple proofs related to income channels, and tax history. There is simply no way around this. You will have to be patient and comply with all the documents that the lender asks for. The best you can do is provide all documentation as promptly as you can.
6. Be ready for fewer options and multiple rejections: Simple but true fact is that you will have lesser borrowing options in every aspect. Many lenders may not even be ready to consider the applications of people with a low credit score. In many cases, they will reject your application for the smallest of discrepancies in the documentation or if they think there is even a chance of misrepresentation of any kind. The best approach is not to lose heart in case of multiple rejections and try if any lender is ready to give a loan with NA or NH in the credit history section.
Always keep in mind that while it may be very hard to get Loan Against Property with a low CIBIL score, it is not completely impossible. You just have to try a bit extra hard and be ready for a high-interest rate and many other charges.
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