Common Mistakes to be avoided while taking Loan Against Property

When a person requires substantial amount of funds for personal or business usages, then loan against property is the perfect way of doing so. This type of loan provides the applicant higher loan amounts with minimal rate of interest due to its nature of being a secured loan. In loan against property, the banking or financial institutions offers the applicant a value or amount based on the property they pledge as collateral. The additional benefits of flexible term or tenure, easy options of prepayments and quick application processing are also provided by the institutions. But while availing a loan against property many people make mistakes that can actually obstruct the bank from providing such loans. Here is a list of common mistakes in loan against property application that must be avoided by a borrower-

Mistakes in Loan against Property

  • Choosing a higher tenor period when one can repay sooner: To avoid his common mistake in loan against property, a borrower must evaluate his/her financial position. They must choose for a tenor that is perfect as per their needs and requirements. One must not choose a longer tenor period as it implies that the borrower will end up in paying more interest on the loan.
  • Misrepresenting the value of property in the application: The applicant must not show a higher value of property in the application for loan. The lender, usually evaluate the value of the property at later stages. The amount is always sanctioned on the basis of the market value of the collateral and not the estimated amount. To get an accurate value of the property the borrower must have a proper valuation of immovable property or other property.
  • Not comparing the interest rates before applying to a lender: One of the most common mistakes in loan against property made by the borrower is not making interest rate comparisons of various lenders before going to a particular lender. One must compare the rate of interest as it affects the monthly installments against the loan. Applicants are advised to always go for a lender that provides an affordable and flexible interest rates and repayment terms.
  • Taking a loan from lender without negotiation: One must always try to negotiate the terms and conditions in the loan process with the lender before taking the loan or funds. The best deal and offers can always be availed by the applicant by focusing on a proper negotiation on the interest charges or processing fees, time period etc.
  • No preparation for a slightly longer time of loan processing: Compared to loans that are collateral-free, loan against property can take a longer bit for the approval of the amount. This happens because the lender has to make sure and evaluate the value of the property before lending the loan amount. It is one of the most common mistakes that applicants make is that they are impatient about the processing time, for which they have to be prepared in advance.
  • Not knowing the usage restriction of the lender: There might be some usage restrictions of the lender on how to use the loan amount by the borrower. To avoid this common mistake in loan against property, one must ensure that they have read all the conditions and terms regarding the same.
  • Paying less attention to the prepayment and foreclosure charges: One of the biggest mistakes in loan against property made by the borrower is that, they are tend to pay less or no attention regarding the applicable charges for prepayment and foreclosure of the loan. One must read, all the loan scheme related documents carefully and understand the terms and conditions beforehand. Most of banks or lenders charge some amount from the borrower in case they prepay the loan and close the loan account before the expected tenure period ends. This can be really beneficial for the borrower and can reduce their liability to pay interest. They must choose a lender for loan against property, who charges nominal or no fees for this facility.
  • Disregarding the Credit Score: The loan against property is a secured loan still the credit score of the applicant is not immaterial in this case. As an important determiner, it affects whether the applicant will be sanctioned a loan or not, chargeable interest rates etc. therefore, the applicants are advised to keep regular checks on their credit score.

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    Author: Anil Agrawal
    EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.
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