Dos and Don’ts of Applying for a Loan Against Property

Dos and Don’ts of Applying for a Loan Against Property

2 September 2022

A loan against property is a cost-effective technique to guarantee that you will have access to money when you need it. You are mortgaging your property in exchange for this secured loan from the lender. With these loans, you must exercise extreme caution because the lender will have your most precious asset.

We present to you some crucial dos and don’ts when applying for a loan against property. Let’s start with what you need to do.

Shop around for loan value and interest rate

This is unquestionably the most crucial step in the loan application process. Talk to representatives from two or three different lenders, including banks and NBFCs, at all times. A loan can be obtained just like any other product. You are free to haggle as much as you like. Keep in mind that even a half-percent reduction in the interest rate might result in immediate savings of hundreds or even lakhs of rupees. Play the lenders’ representatives off of one another to acquire the best property loan interest rate and property appraisal possible.

Choose a highly reliable lender

It is crucial to pick a reputable business to obtain a loan from. Banks are fairly dependable organizations, both privately owned and nationalized ones. You may rely on them to take appropriate care of the property documents you store with them as mortgage security. Walk away from the sale right away if you believe there is even a remote chance that your property paperwork may be lost or misused. No matter how hurried you are, never ever give your most valuable possession to an unreliable counterparty in order to obtain a loan.

Maintain a high CIBIL score

Most people believe that having a good CIBIL score is only required to qualify for loans, and that once they have obtained a loan, they can let their score decline. This is a seriously flawed method of handling credit scores. Always keep in mind that your Credit Score connects all of your credit instruments. Your property loan interest rates will also take a significant knock if you are making on-time payments on your loan against property but fall behind on your other loans or credit cards. Make sure your CIBIL Score is consistently excellent.

Keep yourself aware of loan MITC

 All lenders carefully include the MITC (Most Important Terms and Conditions) paper when they issue a loan agreement, but almost no one bothers to read it. The MITC paper includes a quick reference of all terms frequently used in connection with loan repayment, pre-closure, loan foreclosure, property repossession, and other issues. If you carefully read the MITC manual, you won’t even need to call customer service and endure a lengthy hold time for the majority of the frequent questions you might have. 

Save same loan amount for an emergency

Like with any loan, it is highly recommended to set aside a portion of your loan amount as many months’ worth of EMI payments to cover your payments in the event of unforeseen emergencies. The standard is to always have a six-month EMI on hand, and you should always have two months’ worth of EMIs on hand for emergencies. This will protect you in the event that your income is affected by salary delays, job losses, or any other issue. Keep in mind that this money is for emergencies. The expiration of your auto insurance is not an emergency; you should prepare for it. You should only utilize your emergency fund to pay your EMIs until you can seek jobs in situations where your income stops.

Let’s now examine some of the don’ts when applying for a loan against property:

Do not handover your original KYC documents to anyone

It goes without saying that one of the most important aspects of your life right now is your identity. People are pushed to take responsibility for things they did not do every day as a result of identity theft. This might be as easy as individuals purchasing SIM cards in your name or as complicated as discovering that someone has applied for fraudulent loans and credit cards under your name, leaving you helpless. Always maintain the original KYCs on hand, and only work with the canceled copies. Allow no one to take pictures of your KYC documents.

Do not skip your EMI’s

You have a debt that you must repay in EMIs, yet you may occasionally feel pressured to forgo one. Never succumb to this pressure. Even one missed EMI will result in expensive penalty fees, and your credit score will take a serious hit. Every month, set aside money for EMI payments and make them as soon as you can. Never miss an EMI.

Do not fall for advanced EMI traps

Loan brokers will frequently advise you that paying EMIs in advance will help you save on interest. Avoid falling into this trap. You won’t gain anything unless you are paying a portion of the principal in advance. An advance EMI is simply paying your EMI for the following month early. Maintain the cash and get interest on it. It is recommended to keep your EMI money on hand as an emergency reserve unless you are truly paying down some principal amount in advance.

Stay away from loan sharks

Always make sure you obtain a loan from a financial institution that is subject to government regulation. This means that you should only borrow money against the property from banks or NBFCs that the RBI has approved for lending. Private banks are also an excellent option in a similar vein. Interacting with loan sharks may appear simple, but they are predatory lenders, and dealing with them puts your life and property at risk.

Never overstep on your monthly budget

You will experience a lot of stress over loan payments if you ever take one out. Make a monthly budget and stick to it as one excellent strategy to protect yourself from this stress. Control your spending and specify where every dollar of your revenue should go. Keep in mind that if you don’t tell your money where to go, eventually it will start telling you. Create a budget, account for all spending and EMIs, and follow it religiously. 

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