The Pitfalls Of Applying For Loan Against Property In India

  • Added:
    Aug 11, 2014
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The Pitfalls Of Applying For Loan Against Property In India Photo by Aishwarya Mahurkar

For the most part, financial advisors recommend loans as a sensible way to resolve any kind of financial, medical or personal challenge. However, there are circumstances or situations, when different kinds of loan products can be an ill-advised choice. Therefore, you must consider if any of these pitfalls of a loan against property are applicable to you.


LTV ratio:


Most borrowers are in serious need of funds when they apply for a loan against property in India . This is, in maximum cases, their last resort. Hence, they take a loan on their homes. The good news is that borrowers can even take a loan against the property that they are currently paying home loan EMIs for. If it is the only asset you can take a loan against, then you have a problem since the potential lender will not offer you a loan up to 80% to 85% of the market value of the property, as per the regular standards. If you are paying EMIs for the property, then your LTV will be much lower. It may not be enough to resolve your current issues if the lender offers lesser LTV than the market standards. 


Slower processing:


Since people opt for a loan against property  for medical, educational, business or financial emergencies, it is highly unlikely that the LAP processing will be complete in time to resolve the current issue.


Loss of ownership:


If you do not repay the EMIs on time for the LAP, the lender is in a position to sell the property to recover the amount owed. If the borrower loses one of the many properties, it isn’t a big concern. But, if the borrower and his/her family lose their residential property, it poses a serious threat. A loss of home in the midst of a financial challenge is never easy. It can be a really big problem to recover from.


Long repayment tenure:


The loan amount for the standard loans against property starts around Rs. 25, 00, 000. Though, it is based on the market value of the property, this is the starting point in most cases. So, the repayment tenure can be extended up to 15 years. Any loan default in this duration can be hazardous. This is especially difficult if you have taken a LAP on the property that you are currently paying home loan EMIs for. You can lose a sizable amount of investment foreverby missing out on few small EMI repayments.


Do watch out for these pitfalls before consenting to a LAP in India.

Author's Profile

Aishwarya Mahurkar is an experienced writer concerning the finance industry. Her articles help in informing her readers of the different types of home loan products such as Housing loan, Home improvement / renovation loan, loan against property in India, land / plot loan & processes that cover opt for a loan against property & obtaining finance from loan provider


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