A loan against property can help meet immediate and large financial needs. However, quick loan against property approvals primarily depends on the credit risk assessment conducted by the financial lender, based on loan against property eligibility factors.
Choosing the most appropriate lender becomes imperative as the loan against property interest rate and fees levied by them can also vary. Here are the crucial dos and don’ts to follow before availing of loan against property.
Opt for a tenor based on the repayment capacity
The loan tenor plays a critical role in determining the total loan cost and EMI outgo. Ideally, selection for a loan against property tenor must be based on an individual’s repayment capacity. A shorter loan tenor typically results in higher EMIs and lower interest costs and vice versa. However, this varies from one borrower’s profile to another. However, you may consider opting for a shorter tenor if you are confident that you can pay EMIs on time without sacrificing contributions to other essential financial goals. In case you can’t, choose a longer loan tenor for relatively lower EMIs.
Compare loan against property eligibility requirements and options available from various lenders
Lenders approve loan against property applications and set interest rates based on the cost of funds and the credit profiles of loans against property applicants. This may lead to the interest rate range for the same loan type varying significantly across financial lenders. Hence, it is essential to compare loans against property eligibility requirements and offers from a large spectrum of lenders to land with the most suitable loan offer.
A loan against property applicant must first approach banks they have an account with or from lenders, he has availed of loans from. If these do not work in their favor, they can visit online marketplaces to compare the various loan offers. However, they should do it based on their monthly income, credit history and score, job stability, employer’s profile, and so on. The final loan against the property application must be made with the lender who levies the lowest loan against property interest rate, etc. for the optimal tenor as well as the margin money.
Fetch the credit report before applying for a loan against property
While assessing the loan against property application, financial lenders look at your creditworthiness by analyzing your credit report. Typically, borrowers with a credit score of 750 or above have better chances of approval at a lower interest rate than those with a relatively poorer score. Loans against property applicants with low scores are either denied approval or sanctioned one but at a higher loan against property interest rate.
Getting to see the credit report before submitting an application for a loan against property will permit you to take measures to enhance your credit score if need be. It will also help identify clerical errors or wrong information, if any, on the part of the financial lender or credit bureaus that have pulled down the credit score. A corrected score can also enhance your overall credit score and your loan eligibility.
Before fetching your credit report, you may also be receiving some pre-approved loan against property offers via credit bureaus or online marketplaces based on your credit score, job profile, etc. The pre-approved offers will also be able to give you an idea on your loan eligibility for advanced comparisons.
Do not forget to factor in new EMI in an emergency fund
Financial emergencies, such as medical illness, job loss, etc. come unannounced. These emergencies disrupt future income and the cash flow and thereby, the loan repayment capacity. Failure to make timely loan repayments will cost hefty penalties. Besides, it will adversely impact your credit score. While you can redeem investments to make loan repayments, doing so can impact long-term financial health.
Avoid loan applications with multiple lenders within a short period
Each time a borrower submits a credit application, lenders start fetching their credit report from credit bureaus for evaluating their creditworthiness. The requests made for credit report by lenders are hard inquiries. Each of these inquiries lead the credit bureaus to deduct a few points. Thus, direct loan applications with too many lenders within a short time frame can lower the credit score, negatively impacting loan against property eligibility.
Instead, visit well-known and reliable online marketplaces to make loan inquiries across a wide spectrum of financial lenders. While such marketplaces will fetch credit reports to make loan offers, credit report requests from them are soft inquiries and do not actually negatively impact your credit score.
The Final Word
The ideal way to gear up for future uncertainties is by creating a backup in the form of an emergency fund. The fund must be at least six times the mandatory monthly expenses, including new and existing loan EMIs. Thus, as soon as you start planning for a loan against property, check your loan against property eligibility; try to increase the size of your emergency fund by at least six times the new loan’s expected EMI; also, compare thoroughly to secure the loan against property lowest interest rate.
Read More: Process to Calculate Interest on Home Loan