Every business requires an infusion of funds at different intervals for varied purposes like business expansion or working capital. In such times, a Loan against property (LAP) can be a great choice as it gives you higher borrowing capacity than unsecured personal loans. A LAP can be a loan on commercial property, as well as residential and industrial. Due to the secured nature of the loan, loan against property interest rate is generally lower than unsecured business financing and lenders take a more relaxed approach towards the borrower’s credit score. However, there are a few pitfalls or mistakes that borrowers must keep in mind while applying for a Loan Against Property. Here are five of the most common ones.
- Not comparing interest rates
Loan Against Property interest rate ranges from 7.95% to 13.10% per annum, depending on lender and credit risk assessment of the borrower. It may also differ, depending on the loan amount and repayment tenure chosen by the loan applicant. Compare interest rates of different lenders before finalising one. Also ensure that you apply for an LAP at a lender that charges a low interest rate, with optimal tenure and loan amount.
- Not including processing fees in final amount
Usually, the processing fees charged by lenders, range from 1-2% of the loan amount. As Loan Against Property is a big-ticket loan, the processing charges may be significant. Hence, loan applicants should factor in processing fees charged by lenders, before submitting their LAP application.
- Not choosing correct loan tenure
Loan tenure plays an important role in determining the EMI and interest rate. A longer repayment period can lower the EMI but increase the interest rate and vice versa. As LAP loan tenures can go beyond 5 years, select your LAP tenure based on your repayment capacity. Only choose a shorter tenure, if you are confident of paying your dues timely, without causing your vital financial goals to take a hit.
- Not keeping disbursal time in mind
LAP disbursal can take considerable time, as lenders have to verify all property related documents and evaluate the market value of the property, before approving the application. For those in urgent need of funds, LAP might not be the best option. Such applicants should go for personal loans, as they have a shorter processing time.
- Not accounting for financial emergencies
Illness, job loss, business loss and other financial emergencies can hamper your cash flow, income and indirectly, your loan repayment capacity. To reduce the financial risk of such unforeseen situations, borrowers should also factor in existing EMIs in their emergency fund. This fund should be sufficient enough to handle unavoidable expenses for at least six months.
These are the few things you should keep in mind while applying for an Loan on commercial property or others. Once you have ticked off all the above points, you can confidently apply for one. And for getting an LAP conveniently and promptly, choose Electronica Finance Ltd. They are an NBFC with three decades of experience in business financing. They offer LAPs up to 3 Cr., with a loan repayment tenure of up to 84 months, with an LTV Ratio of 70% of property value. You can even use your industrial property as collateral. So, fulfil your business ambitions with an LAP from EFL and watch your business prosper!