Summary:
This article provides all the information you need to improve your chances of getting a loan against property by knowing the different factors lenders use to evaluate borrowers.
Lenders prefer a loan against property against an unsecured loan application since the latter does not provide collateral. If you have either residential or commercial property, you can use it as security to get the best loan terms.
The Loan-to-Value ratio, or LTV, is around 60 to 70% of the property’s market value. That means if you apply for a loan for Rs. 50 lacs, then the loan offered by the bank would be a maximum of Rs. 35 lacs.
The interest rates are competitive, and the loan is processed faster if your documents are in order. While all these make such loans attractive for the borrower, there are some factors that lenders consider before they grant you a loan.
Let’s dive in!
Regular Income
Banks insist on income documentation since they prefer lending to borrowers with steady incomes to ensure you can pay the loan EMIs on time. Whether you are self-employed or salaried, the lender requires income proof like Form 16 or Form 16A. If the lender finds you have insufficient income, your loan against property can be rejected.
If you haven’t filed your ITR regularly or there are insufficient ITR (Income Tax Returns) filed by you, your application might be rejected.
Poor Credit History
Loan against property interest rates depends on your CIBIL score. A low credit score means not only higher interest rates, but there are also high chances of your loan application being rejected.
Ensure your cheques don’t bounce and you pay within the due dates. Keep checking your credit history and ensure there are no errors in your credit report.
With a high credit score, not only is there a high chance of acceptance of your application, but you enjoy lower interest rates.
Frequent Job Changes
If you change jobs regularly, your loan application can be rejected since your financial stability is poor. To ensure a higher chance of acceptance, make sure that you change jobs only after every 3 to 5 years. Lenders would consider it safer to sanction a loan to someone with a stable job.
Lack of Proper Documentation
A loan against property will be granted provided all relevant documents, like building plans, are in order. Ensure that your property title is clear, you have obtained all required approvals, and all taxes are up-to-date.
Property Insurance
Having your property insured improves your chances of getting a loan against property. In the event you are not there, your family will not have to bear the burden of repaying the loan. It protects your interest as well as that of the lender.
Loan Tenure
A higher credit score ensures a flexible repayment schedule, and you can get a longer loan tenure. While the total outgo in terms of interest and principal is higher for long-term loans, the amount you pay monthly as an EMI is affordable since the number of instalments is greater.
Age of Borrower
The lower your age, the higher the chances of getting a loan. People on the verge of retirement are considered risky, and a long-tenure loan application would be rejected. You can opt for a short-term loan. However, your EMIs will be higher.
Previous Loan Rejections
If you have applied for a loan and got rejected, this is reflected in your credit report. When the bank finds a loan rejection in your credit profile, you have a higher chance of rejection.
To avoid such problems, make sure you actually need a loan and have the cash flows to pay for it. Keeping all loan payments up-to-date ensures a greater possibility of getting a loan.
Conclusion
A loan against property is an economical and effective way of financing home improvements or a new business. To improve your chances of getting a loan, make sure that you keep your credit score high by repaying all your debts on time, having a clear title to the property, and getting property insurance.
If you are eligible, apply for a loan today.
Naveen