Synopsis: While applying for a Loan Against Property, there are some common do’s and don’ts that you need to follow to make sure that your application is not rejected. Read along as we discuss them in detail! 

Small business loans are a great way to pay for things such as equipment for your business when you are starting up. For example, say you have a great concept for a restaurant but don’t have the money to invest in the kitchen equipment right away. In that case, you can get a business loan to cover the costs of such necessary equipment. One such loan is LAP.  

A Loan Against Property (LAP) is a low-cost method of ensuring you have funds when you need them. It is a secured loan in which the lender disburses funds after keeping the borrower’s legally owned property as security or collateral, and LAP has several advantages. The property can be a piece of land, a borrower’s house (owned or rented), or business. 

But since you are entrusting your most important asset to a lender, you must proceed with extreme care. In this article, we’ll talk about some common things you should do and things you should avoid when applying for a LAP, so you don’t have to worry later. 

Do’s of Applying for a Loan Against Property

Here’s what you should keep in mind while applying for a Loan Against Property: 

1. Compare the interest rates and loan values 

When looking for a loan, always compare the terms, conditions, and rates because they might vary significantly amongst lenders. You might want to talk to representatives from at least two or three different lenders, including banks and non-bank financial companies (NBFCs).  

You should shop for a loan just like you would for any other product or service and find the best deal for your business. Remember that, over time, even a half-point reduction in the LAP interest rate will save you thousands, if not lakhs. Set the lender agencies against each other to make sure you get the best deal on interest rates and property valuation. 

2. Review the lender 

The loan amount can be big, and the costs and interest rates that the lender charges can make it even bigger. Therefore, it is important to get a loan from a reputable financial institution. 

You should choose a lender whose interest rates are reasonable and who you can trust. However, this can’t be the only deciding factor. If you think there is even a small chance that your property papers will be lost or used wrongly, walk out of the deal right away. No matter how quickly you need a loan, you should never give your most valuable asset to someone you can’t trust. 

3. Read all the documents twice 

It might sound like Latin and Greek, but it is important to read financial documents before signing. There could be fees or rules that you haven’t been told about that could change the terms of your loan.  

For instance, every lender diligently delivers the Most Important Terms and Conditions (MITC) document with a loan agreement, but hardly anyone reads it. The document briefly lists all common loan situations, including loan pre-closure, property repossession, and loan foreclosure, among other conditions.  

If you read the MITC document, you won’t need to call customer support and wait for hours just to get a simple answer. So, make sure to always read the fine print of an agreement carefully before you sign below the dotted lines. 

If you can’t make head or tail of financial mumbo-jumbo, reach out to your lawyer or someone who does.  

Don’ts of Applying for a Loan Against Property 

Here are certain things that you might want to avoid before entering a legal contract with a financial institution:  

1. Skip the payment dates 

You took out a loan that you have to pay back in EMIs, but you will often want to skip an EMI. Never give in to this enticement. If you don’t pay your EMIs, the lender can charge you a high late payment fee.  

Missing even one EMI can result in severe penalties, a drop in credit score, and a reduction in your ability to borrow. Therefore, you should plan your EMIs and pay them as soon as possible each month. 

2. Ignore your CIBIL Score 

When a borrower applies for a loan against property, the lending institution cross-checks with other financial institutions to see if the borrower already has an active loan. If the review reveals irregularities in the repayment of previous loan EMIs and/or a low credit score, your loan application can be denied. 

This is because all of your credit instruments are connected by your credit score. If you make timely payments on your LAP but ignore other loans, your interest rates will suffer. You must, therefore, keep a close watch on your CIBIL Score and, in case of any errors, contact credit bureaus and financial institutions to have them fixed. 

3. Share your original documents 

Your identity is undoubtedly one of the most important aspects of your life. This is why identity thefts have become so common that people end up being accused of crimes they did not commit.  

This may involve someone buying SIM cards with your identity or someone fraudulently accessing credit cards and loans on your account, leaving you stuck. Therefore, share copies of your KYC documents when needed, and keep the originals safe. Do not let anyone take photos of your documents, either. 

Take a collateral-Free loan with Protium 

Putting up your house or land does not mean you can no longer use your property. Your lender just takes on the paperwork for your property, while the possession stays with you. 

Taking a Loan Against Property is a significant financial commitment with long-term financial implications. Oftentimes when you fail to pay your LAP, you may end up losing your property.  

To avoid situations like this, consider availing loans from private lenders such as ourselves – Protium – a finance company building powerful and transformative financing solutions. At Protium, we offer business loans with zero collateral requirements and affordable interest rates. To know more, give us a call at 8828827800.