A person can opt for a loan against property (LAP) or a property loan by mortgaging a commercial or residential property under his/her possession. This is one of the most versatile loans that an individual can opt for to finance higher education for their children or marriage.
However, before one applies for an LAP, he or she should be aware of associated fees and charges on property loans. This blog will help break down all the charges that borrowers must pay on an LAP.
Property loan interest rate
While searching for the best lender to apply for a loan against property, most applicants will first check which one offers the lowest interest rates. Property loans carry relatively low-interest rates due to their secured nature.
LAP interest rate primarily depends upon the principal amount and loan tenure. Owing to the huge competition among lenders in the market, one will notice a huge variety of interest rates. However, borrowers’ credit profile decides whether he/she will receive a high or low-interest rate on their property loan.
Before applying, it is necessary to compute one’s EMI beforehand with the loan amount, tenure and lender’s interest rate. They can do so manually or use a property loan EMI calculator. This tool provides instant and accurate results, unlike manual calculation. Applicants can compare and analyse offerings from different banks and NBFCs to make an informed decision.
Associated fees and charges on property loans
Let’s take a look at the different fees and charges that a borrower must pay with their property loan.
- Processing fee: Every bank or NBFC levy a processing fee from borrowers while approving a residential or commercial property loan. Lenders charge this fee for evaluating and processing a person’s property loan application. This includes expenses for land valuation, document handling and lawyer fees for approving loan applications. Lenders charge this fee in a range from 0.5% to 2% of the loan amount along with GST. This range might vary between lenders and can affect a person’s monthly obligation. Borrowers should also note that the processing fee is usually non-refundable. In other words, once an LAP is sanctioned, most lenders will not refund this fee if the borrower cancels their loan.
- Part-payment fee: Very often, borrowers want to make additional repayments over and above their monthly obligations to close their loans faster. This is called prepayment or part-payment of dues. Several banks and NBFCs charge an additional fee for this mode of repayment. It depends on the lenders’ discretion whether to charge part-payment fees from borrowers. Therefore, borrowers must study the lender’s terms and conditions thoroughly to check for part-payment fees and charges on property loans. If one opts for a lender offering zero part-payment charges, they can foreclose their loan easily without paying extra charges.
- CIBIL report charges: After the submission of a property loan application, lenders analyze a person’s creditworthiness by studying his/her CIBIL report. The CIBIL score provides an overview of a person’s credit report and decides their loan against property eligibility. A score above 750 is considered good while below this number is a poor credit score. Applicants should know that lenders perform hard inquiries for loan applications. These inquiries appear on a person’s credit report; thus, multiple applications within a short time can lower one’s credit score.
- Statement charges: Lenders collect a statement fee or charge for property loan statements that they issue to a borrower. These statements contain a periodic payment history and outstanding amounts for an individual’s ongoing debt. This charge is minimal; however, it can affect a person’s overall finances if they have more than one existing loan. Therefore, a borrower must browse their property loan contract minutely before signing to know the statement charge or fee.
- A late fee or penal interest: Another important fee and charge on a property loan is the late fee. This is a penalty fee that an individual borrower must pay for the late payment of dues. If they miss the due date even by one day, a late fee or penal interest mounts on their debt. Missing dues are signs of poor financial management and indiscipline. It not only attracts a late fee but also decreases one’s credit score. Borrowers must avoid late payments by keeping their debt at a manageable level.
- EMI bounce charges: If a borrower fails to pay EMI for a certain month owing to a technical glitch or insufficient balance, a lender will charge an EMI bounce fee. This fee is a small per cent of that bounced EMI amount that they must make in the next payment.
- Secure fees: Lenders tend to charge this on property loans to ensure the security and safety of their customers’ loan accounts. Today, most borrowers can manage their loan accounts online. This account helps them to check their transaction, get NOC and many more activities that make this account sensitive.
- Legal fees: Lenders need to thoroughly verify the details and documents submitted by loan applicants before approving them. They will also check whether the property is involved in any legal disputes or not. Before sanctioning a loan, they evaluate all legal documents and carry out on-site analysis and valuation. To take these measures, lenders must hire the services of lawyers and legal experts.
- Loan rescheduling charges: If a borrower thinks that he/she cannot repay the outstanding amount within the set tenure, they can request a tenure extension. Many lenders allow borrowers to reschedule their loan tenure in return for a certain fee. This is the loan rescheduling fee or charge.
If a lender mentions the above charges on its website, borrowers can use a LAP calculator to compute their monthly obligation to check if the loan is affordable.
Several banks or NBFCs provide a pre-approved offer to their long-standing customers for products like home loans and loans against property. Such offers let customers tap into benefits like quick loan applications and lower interest rates. To check the eligibility for pre-approved offers, an individual must visit the respective website of their lenders. Then, they need to enter their contact details to check their eligibility.
One must consider all the above fees and charges on property loans that a lender offers. Based one’s decision solely on the interest rate can cost an individual more if they are not careful about these additional charges. Therefore, one must be well aware of all the additional charges a lender imposes upon an individual’s property loan.