If you’re in need of urgent money, a loan is one of the best ways to get the funds you need. But given that there are different types of loans, which one would be the best option? A loan against security offers you immediate funds in exchange for collateral. It could be the solution you’re looking for. Read on to find out more about this type of a loan and how it can help you.
Features of a loan against security
Secured loans have a variety of features that are designed to benefit you. These include the following:
You can get a higher amount of loan.
Since you offer collateral in return, you usually get cheaper rates of interest.
You can use the loan money towards any expense of your choice.
You get a longer period of time to repay the money.
Let’s now look at these features in detail to understand them better.
Available to both salaried and self-employed individuals
One of the best features of this loan is that anyone can apply for it. It doesn’t matter whether you’re drawing a salary or running a business. Other loans usually require you to fall into either of these income-type criteria to be eligible for a loan.
But unlike the other loans, you can apply for a secured loan as long as you have a collateral that is more valuable than the money you’re looking to get.
High amount of loan
You can get a significantly high amount of money as a secured loan. This depends on the lending policy of the lender you’re taking the loan from. But usually, you can take up to 60% of the market value of the asset you’re offering as collateral.
For example, if you have a property that is worth Rs.1 crore, you can get a loan of up to Rs.60 lakh by offering it as collateral. This is one of the easiest ways to getting money in exchange for an asset.
Lower interest rates
Lenders charge you an interest rate so that they earn income when they lend you money. This interest rate depends on the risk attached to such lending. If you’re a borrower with a high risk profile, your interest rate will be higher, and vice versa.
But, when you offer collateral, this risk is minimised. In case you aren’t able to pay back the loan on time, the lender will have the right to confiscate the property. He can then sell it and make good the losses he has suffered due to your non-repayment.
Since the risk is minimised, secured loans usually come with lower rates of interest.
Use for any expense
Only personal loans and secured loans allow you to use the loan money towards any purpose of your choice. Other loans such as home loans, vehicle loans, education loans, etc. allow you to use the money only for the specified purpose.
When you take a secured loan, you can use the money to pay for any expense whether it is paying for wedding costs, expanding your business, paying medical bills, etc.
Longer loan repayment period
These loans are usually characterised by long repayment periods. Lenders may offer you up to 15 years or 180 months to repay what you’ve borrowed. Since the loan amount is also high, the long tenure can ensure that you will be able to afford the monthly repayment amounts.
Faster loan processing
Loans against property need very less documentation. And since you and the lender don’t have to spend time producing and verifying multiple documents, the time taken to process the loan is also lesser.
The lenders also ensure quick sanctioning and disbursal of the loan amounts.
Other aspects of a secured loan
Now that you know about the features of such a loan, it’s time to look at a few other aspects of a secured loan. This section will take you through the eligibility, documents required, loan costs, and other important facts.
You’re offering collateral for this loan. Shouldn’t that be enough to get you the money you want? If only it was that easy. Other than the security you provide, lenders also expect you to fulfil certain eligibility criteria. Some of these include:
The value of your property
Yes, this type of a loan requires less number of documents. But you still have to provide the lender with a few basic documents to prove that you fulfil their eligibility criteria. Some of the documents that lenders usually ask you to provide are:
Proof of age
Proof of address
Proof of income
Property ownership documents
When you submit these documents, make sure you submit the correct ones. When you fill in the loan application form, ensure you give all the correct details as supported by your documents. Failure to provide correct and complete information will result in loan rejection.
Other than the interest rate the lender charges on your loan, you also need to keep an eye out for other charges. These include:
Prepayment and foreclosure charges
Make sure you go through the loan offer documents thoroughly to verify all the possible fees and charges associated with your loan. This will help you avoid fines and penalty payments later. It will also tell you if you are being wrongly charged by your lender.
Loan transfer facility
This is a useful facility to have. In case you find another lender offering you a loan with better terms and rates, you can choose to switch over to the new lender if your existing one agrees. Check with your existing lender if they will allow you to transfer your loan before finalising a deal with the new lender.
For a loan transfer, you will have to get the money from the new lender and use it to close your existing loan before you can transfer it. You may have to pay foreclosure and prepayment fees if you’re opting for this facility. So, calculate all these costs and see if the transfer is actually worth it.
How to choose the right lender
There are a few things you need to look out for when choosing your lender. Here are a few pointers on how you can find the ideal lender:
Loan amount: Choose a lender that offers you the amount of money you’re looking to get. If you’re looking to get some extra money, look at lenders who consider any additional income you may have while calculating your eligibility.
Ease of application: If your application process is long and cumbersome, it may spoil the loan application experience for you. Look for a lender that offers easy and quick application.
Loan costs: The lender you choose should offer you the lowest interest rates along with reasonable processing fees, valuation charges, and other fees. Calculate the total cost of the loan for each lender and choose the lowest one if all other parameters are convenient.
Repayment options: Go with a lender that offers you easy and convenient repayment options. Payment options such as auto debit from your bank account and online payment facility can help you pay your EMIs with the least hassle.
Customer service and easy transacting: This is an important aspect to look for when you apply for a loan. Make sure that the lender has a good customer service team to help you in case problems arise in the future or to answer any queries you may have. Also, ensure that the lender offers easy options for transacting with them. Look for features such as core banking, number of branches, good networking of branches, internet banking, etc.
Once you apply for a loan, make sure you repay it on time every month. Set reminders, mark your calendar, or use any other method that’s most convenient to you. Defaulting on your loan repayments is something you want to avoid at all costs. It keeps you indebted for a longer time, attracts heavy penalties and late payment fees, and affects your credit score.
Using a loan wisely can help you in a number of ways. And remember, you may lose your property if you don’t pay it back on time.
Other fees and charges
Mortgage stamp duties
Property valuation report
Proof of identity
Your credit history and credit score
These loans are processed faster.
They are available to both salaried individuals as well as self-employed individuals. To know more about loan against property and eligibility & Interest Rates Click Here