While it is easy to be enamoured by a loan against property features of ample loan amount and competitive interest, and not worry about repayment because you have around two decades to do so, failure to do repay the amount on time can have dire consequences. You may lose the property and your credit score will certainly take a hit. Thus, when applying for a loan against property in India it is important to not only properly evaluate all the benefits the loan comes with, but to also diligently chalk out a plan for repayment. Despite the lengthy tenor and affordable interest rates, it is essential you have a sound financial plan to avoid any instances of debt, marred credit history or loss of your property.
To get started on the right foot, here are 4 tips to simplify repayment for a loan against property.
Choose the Principal, EMI and Tenor wisely
Being a secured loan, lenders will generally offer you a huge sum of money when you take a loan against property. At this stage it is important to be very practical about the amount you require, because availing more than you need will result in you paying extra interest for no good reason.
Next, you need to carefully choose your EMI and repayment tenor. While it might be attractive to take the longest loan against property tenor, doing so means that you will end up paying more interest on the whole. However, it also results in lower EMIs. So, it is best to have a good balance as per your financial condition.
For example, if you have a loan of Rs.20 lakh, an interest rate of 10% and a tenor of 40 months, your EMIs will be Rs.59,002 and the total interest payment will be of Rs.3,60,063. However, if you bring down the tenor by 5 months, your EMIs will rise to Rs.66,117, but the total interest payable will drop to Rs.3,14,088.
Increase EMIs and Make Prepayments whenever possible
When approaching loan repayment, it is best to reduce the loan’s tenor rather than reduce the EMI amount as seen above. In fact, whenever your finances allow you to do so, you should increase the EMIs. This is especially true if you receive annual increments in your salary. By doing so you will be able to repay the loan quicker.
Making a part-prepayment whenever you can will also bring down the principal, and subsequently lower each EMI and the total interest payable. By making simple lifestyle changes like cutting back on entertainment expenses or driving yourself instead of hiring a driver, you can start making pre-payments every year.
Use Cash from other Investments when Necessary
Borrowing from, or liquidating investments can always be a last-resort solution. The logic here is that you end up losing less when you choose this method. You can use dividends from market-linked securities that you hold, returns from mutual funds or ELSS, or take the maturity amount from your PPF or FD investment to repay the loan. This is a smart way to clear the loan without landing yourself in debt again.
Transfer your Loan to an Affordable Lender
Another novel solution is availing a balance transfer. If you find a lender that gives you a better interest rate it makes good sense to make the switch early on in the tenor. Even a small change in the interest rate can make a big difference when you do the math. But it only makes sense to carry out a balance transfer at the start of the tenor. This is the period when EMIs comprise mostly of interest and switching to a lender with a lower interest rate will significantly bring down your cash out flow.
Additional Read: Repayment Tenor: Why is it Important to Consider?
Bajaj Finserv is one such financial institution which offers not only affordable interest rates, but easy balance transfer facilities. With minimal paperwork and quick processing, you are sure to be able to clear your loan without any hassle when you choose a Bajaj Finserv Loan Against Property. This loan comes with zero prepayment and foreclosure fees. More importantly, it offers you up to Rs.3.5 crore that you can repay over a tenor of 20 years. To make things easier, loan against property eligibility criteria are only a few, as are the loan against property documents required.
To get finance in the shortest time-frame possible, don’t forget to check your pre-approved offer and use it to apply!