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Loan Against Property: Top 5 Mistakes You Should Avoid


A loan against property is a secured loan you can take to meet your business or personal needs. Compared to unsecured loans, it gives you a higher borrowing capacity at lower interest rates. A loan against property can be obtained against a residential or commercial property without losing its ownership. The lenders usually go easy on the borrower’s credit score while evaluating their creditworthiness. Due to this relaxed approach, borrowers often miss out on some important factors. Here is a list of five mistakes you should avoid while taking a loan against property.

Mistakes to Avoid While Taking a Loan Against Property

Before you take a loan against property, you should avoid these common mistakes.

  1. Not Comparing Interest Rates

Interest rates have a direct effect on your monthly finances. The higher the interest rate, the more your monthly EMIs will be. As a result, regardless of the type of loan you choose, it is best practice to compare interest rates. Look at the rates different lenders are offering. They might differ from lender to lender. One can easily find them online. Once you compare the interest rates, choose the ones that meet your requirements.

  1. Not Comparing Processing Fee

Most lenders charge a processing fee between 1% and 2% of the loan amount. Since loans against property are big loans, the processing fee can be significant. So you must consider this factor before taking a loan against property.

If the loan is offered at fixed interest rates, the lenders may also charge prepayment charges. However, as per the RBI guidelines, floating interest rates have no prepayment charges. Prepayment charges may cost you a hefty sum, so try to secure a loan against property with a floating interest rate.

  1. Not Opting for the Right Tenure

Loan tenure plays a key role in loan repayment against property. It also affects your monthly finances, given that you will be repaying it in EMIs. Choose the right tenure so that monthly EMIs don’t become a burden and you can pay them without defaulting. Failing to make the repayments on time can have negative effects on your credit score and loan eligibility in the future. It may even attract some penalty charges.

Choosing a longer tenure will reduce your EMIs, but it will increase the interest rates. And a shorter tenure will decrease the interest rate, but the EMIs will be much bigger. Shorter tenure works best when your current liabilities or fixed obligations are on the lower side. Hence, choose the tenure according to your suitability.

  1. Not Considering the Disbursal Time

Disbursal time for a loan against property can take up to 2–3 weeks. It takes time for a lender to verify all the documents and evaluate the market price of the property. For people looking for instant funds, a personal loan might be a better option as it has a shorter processing time. Nonetheless, if you want a loan against property, inquire about the disbursal time with the lender before applying.

  1. Not Factoring Existing Liabilities

When you apply for a loan, a lender will check if you have other existing liabilities. They will look at your debt-to-income ratio, which shouldn’t be too high. This is used to ascertain your repayment capabilities. If you have other loans when you apply for a loan against property, only borrow the amount you can repay without trouble. Your credit and repayment history will also be considered. A history of defaulting might result in getting the loan at higher interest rates or even rejection.

Benefits of a Loan Against Property

A loan against property can be used for many purposes. Apart from its uses, it comes with multiple benefits as well.

  • Easy online application.
  • Longer and more flexible tenure of up to 15 years. It lessens the burden on the borrower.
  • Processing is transparent, as there are no hidden charges.
  • Lower interest rates as compared to unsecured loans.
  • Higher loan amount.
  • No restriction on the end use of the loan. You can use it to expand your business or for other personal reasons.
  • You do not lose ownership of the property used to secure the loan. You can stay at the property hassle-free once the repayment conditions are fulfilled.


A loan against property is a mortgage loan that can be taken against a commercial or residential property. It comes in handy during times of financial crunch. You can even use it for business expansion and even personal needs like a marriage in the family. Some factors that a lender will check before approving the loan are a healthy credit history, your income, the value of the property in the current market, and more. Loans against property are secured loans. Hence, they offer larger borrowable amounts and lower interest rates than unsecured loans. Compare the interest rates with what other lenders are offering and opt for the tenure that suits you the best.

Check the other factors we mentioned before taking a loan against property. For more finance-related blogs and other tips, visit us at Piramal Finance. Our experts over there will help you make better financial decisions.