Like a top-up home loan, a loan against property (LAP) is a means to raise large funds at low rates. But for a top-up loan, you need to have an ongoing loan. For LAP, your property needs to be free of encumbrances.
The interest rates on LAP are slightly higher than top-up loans. There is a difference of up to two percentage points between the two.
Here are few mistakes to avoid when taking a loan against property.
Compare interest rates: The interest rate of LAP starts at 8.4% and can go as high as 14.5%, according to data from Paisabazaar.com. The interest rates differ depending on the property and borrower profile. Take the example of Bajaj Finserv. According to Paisabazaar.com data, the interest can vary between 10.1% and 14.5%.
Compare processing fee: Most lenders charge 1% of the loan amount as the processing fee. But if you dig a little deeper, you will realise lenders also cap the maximum processing fee they would charge. State Bank of India charges 1% as a processing fee but a maximum of Rs50,000. Bank of Baroda has a cap of Rs1.5 lakh. Therefore, a borrower should check the cap.
Tenure is important: Most lenders offer LAP for up to 15 years. Like Axis Bank, PNB Housing Finance and Bajaj Finserv, some can give even a LAP for up to 20 years.
Higher tenure means lower equated monthly instalment (EMI) and vice versa. You will need to strike a balance between tenure and EMI. Keep the tenure as low as possible to save on the total interest outgo.
Disbursement takes time: Lenders don’t give LAP instantly. They verify the creditworthiness of the applicant and also evaluate the property. All these things take time. It can take up to three weeks or more in the current scenario. Do factor in the disbursement time before applying.
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