A property loan is a great way to get funds for immediate requirements. Read on to know more about important things to consider while applying for a loan.
You can apply for a property loan for several purposes. As the name suggests, it is a type of debt that you can avail from any lender by pledging property as collateral against the amount you borrow. You can keep any property as collateral, including residential buildings, commercial property, land, etc. Since it is a secured loan, you can avail a higher amount, and for a longer duration than a personal loan. Also, the interest rate for a property loan is much affordable than any unsecured loan.
But, before you apply for a property loan, here are five things that you must be mindful of:
- Assess the value of the property
The value of the property greatly depends on the locality, the size, the age, and the type of building. Before you initiate the loan application process, it is a good practice to assess the property value. This will give you a fair idea about how much loan you can borrow against it. Generally, the lenders sanction about 50% to 60% of the property’s market value.
- Know about the lender-specific eligibility criteria
Different lenders have different eligibility criteria for a property loan. Hence, it is paramount that you understand the lender-specific criteria before you shortlist the lender. This will help you eliminate the risk of rejection and ensure that you get the desired amount. If you meet the lender’s requirement, the loan will be approved faster.
- Interest rate
The interest rate of a loan is one of the critical factors you must consider when you apply for a property loan. The interest rate varies from lender to lender, and it can be between 8.75% and 11.55% based on the type of property you pledge and the loan amount you apply. Take your time to research about different lenders and choose the one that offers the loan at a competitive interest rate so that the EMI is affordable.
- Choose the right tenure
Apart from the interest rate, the loan tenure is an important thing to consider as it has a direct impact on the affordability of the loan. Longer the duration, lower the EMI. So, choose the tenure carefully so that you can easily repay the loan. Most lenders in India provide property loans for 10-15 years. You can use the property loan EMI calculator to know the exact EMI payable for different tenure and choose the loan term accordingly so that the EMI is affordable.
- Consider the associated charges
When you apply for a property loan, the interest is not the only charge you must bear. There are other charges that you must be aware of and consider these additional expenses to determine the overall loan cost. One of the most significant charges is the processing fee; when you apply for a loan, the lender charges a processing fee, which is usually up to 1.5% of the loan amount or a fixed amount, whichever is higher.
Some lenders also charge a prepayment fee in case you repay the loan amount before the end of the actual term. The prepayment fee varies from lender to lender, and it depends on when you prepay. For example, if you opt for a part or full prepayment within six months of the loan approval date, the lender may charge you a prepayment fee of 2% on the amount prepaid plus taxes and statutory charges.
Lastly, before you sign the loan papers, take time to read and understand the terms and conditions and check if the loan terms are favourable to you. If you have any doubts, speak to the loan officer immediately; sign the paper only if you are 100% happy with the terms.