Your finances can take a backseat all of a sudden, without your knowledge. During the times of fiscal crunches, finding the funds to resolve emergency financial needs is tough. Given this scenario, applying for a Loan Against Property (LAP) is the first and most widely used way to get out of such a crisis. Obtaining financial assistance through a LAP ensures you get the financial help you require without having to borrow from your friends and family.

Availing Loan Against Property is a relatively seamless process. Applying for this type of loan can be carried out online or by personally heading to a financial institution. However, before going into these details and procedures, there are a few aspects you need to take into consideration. Here are five things you need to watch out for when considering Loan Against Property.

1) Be practical when taking a loan

Applying for such a loan means giving the bank permission to lock up your property/assets from the moment the bank disburses the loan. Failing to repay the loan implies that the bank will seize your property/assets and take measures to recover the loan amount recovered. If this happens, your property/assets will stay with the bank until the full and final settlement is complete. Understanding that you have the required income and can repay the bank at regular intervals is imperative.

As it is, banks need to know that you won’t default on your payments. Approval for the loan comes only when banks are confident that you have a steady income and repayment ability. Your EMIs (Equated Monthly Instalments) and repayment tenure are decided after considering your income.

2) Go in for a shorter tenure

Drawing relief from the fact that you are not running out of days to pay off a loan is appealing. However, this also implies that the loan applicant is paying more interest. Since you are eventually paying more interest, the loan becomes more expensive. Rather than opting for a loan with a lower EMI and end up spending more on interest rates, going in for a shorter tenure is wiser.

If it is not possible to go in for a shorter tenure, ask your bank whether you can increase your EMI every year as your income rises. Even a minor increase in your EMIs can reduce loan tenure and so your loan burden.

3) Take into account property value

When you Apply for Loan Against Property, knowing the property value and the monetary worth at stake is very essential. Say, for instance, if you require a loan of a particular amount, but the estate’s current market value is less than the loan amount you are applying for. In this case, getting the loan amount you have applied for entire is not possible on that specific property. In short, the loan amount sanctioned cannot be more than the value of the property.

Getting about 50-90% of the property’s market value as a loan is promising. If the loan amount is higher than the cost of the property, taking into account other kinds of financing alternatives is important.

4) Recognize and understand the fees involved

Taking into consideration only the interest rates is not enough when going in for a Loan Against Property. You have to think about other factors and fees too. Apart from the interest rates, there are various other costs. This includes pre-closure charges, administration charges, loan processing fee, agent’s expenses and sales tax including other factors.

It is also essential to make payments on time. Any delay in payment directly affects your credit score. This makes it difficult to avail a loan, for the next time you want one. Not paying your fees on time also brings in late penalties. You can be charged with a huge interest if you fail to adhere to these factors.

5) Read the fine print mentioned cautiously

Loan documents are long and filled with jargon. This does not mean that you skip all of the fine print and head straight to sign the agreement. Not reading the fine print carefully costs you dearly. Being aware of everything related to your loan is important. This includes terms and conditions as well as policies.

Understanding these documents carefully keeps you aware of the loan’s additional costs the bank charges you with. Opting for a Loan Against Property comes with a foreclosure charge. This charge varies depending on each lender. It is essential to be aware of these things before signing the agreement.

Make certain that you replace high-cost loans and refrain from borrowing more than the required capacity. It is not just enough to think about ‘where can I get a Loan Against Property.’ Keeping these above-mentioned factors in mind helps in ensuring, that your Loan Against Property, is thoroughly examined by you. This helps you obtain the loan in a trouble-free way.

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