What you must know Before Pledging your Property

by Unknown 22:46 0 comments loan against property property loan

Taking a loan against property is a good way to raise funds in times of need. However, there are some facts you must be aware of before taking the plunge.

There are very few people today who have not availed of a loan for personal or business use at some point of time. People need a large quantum of money for various reasons – to buy an office space, to arrange for their child’s wedding, to finance their children’s education abroad…the list of needs is endless. Borrowing from private sources such as friends and relatives is not always possible, and the sums thus accrued may not be very high.

Hence, most people’s preferred option to raise funds is to borrow money against securities, which may be in the form of property, gold, stocks, shares, mutual funds, etc. Of these, the highest loan applications fall under the ‘loan against property’ category. People take loan against property when buying a new home, or looking to purchase a second property (such as a new residence or office space) or even to meet large personal expenses like paying for children’s education or their own medical treatments. 

Why take loans against property?

Banks and financial institutions are usually amenable to extend loans against property. Property is a good collateral with steady rise in value. This category is amongst the largest across lending institutions in terms of numbers of applicants – it is safe to assume that loan against property in India is a popular category. 

Loans against property interest rates are normally lower than those offered against other loans.

What you need to factor in before applying

Taking the decision to apply for a loan against property is the easy part – the tough part is gathering the documentation and the financial wherewithal to repay the loan every month in the form of equated monthly instalments (EMI).

Firstly, you must consider the interest being charged on the principal amount, and the tenure you are looking at. Compare loan against property interest rates across a range of premium banks and financial institutions before you make the actual application. Also, understand the EMI calculations thoroughly – you should not be caught unawares when the repayment cycle begins.

An important step is to take stock of your finances. If you think you lack the money to maintain your current standard of living and run your business while also paying the EMI, you might consider switching to loan against property at a lower interest rate, or a lower principal amount.

Remember that defaulting on your repayment is not an option. Once the property is pledged to the bank or financial institution, you do not have complete ownership over it. If you are found to be unable to make the repayment, the lending institution may attach the property.

Get your documents in order

You will need to submit proof of residence, income statements for at least six months, appointment letter from the company, copy of PAN card, etc when making the loan application. The lending institution will furnish a list of documents you need to submit. It will also conduct due diligence on all the information provided – expect verification checks for residential address, place of work and designation, property against which the loan is being taken and financial proofs furnished.