What are the Do’s and Don’ts while taking a Loan against Property?

Availing a Loan Against Property (LAP) is one of the best ways to get funds when you need them. With simple eligibility terms, in this secured loan, you would need to mortgage your property with the lender in exchange for a loan. Since LAP is a high-value loan where you would be mortgaging a valuable asset with the lender, it’s important to ensure you run through the checklist thoroughly and avail a loan with the best features. To help you with this, here are a few do’s and don’ts to follow while taking a loan against property.


Do Your Research Thoroughly – Do your research thoroughly and compare various lenders and their offerings. Different lenders offer different features on loans against property. Compare the loan against property eligibility criteria, loan value, interest rate and loan tenure.

Do Check the Foreclosure or Prepayment Charges – Before availing a loan against property, make sure that you check the foreclosure and prepayment charges. Lenders levy these charges if you decide to make higher payments than your actual monthly installments or repay the entire loan amount before the end of the tenure. Select a lender that levies minimal or no charges for this foreclosure or prepayment.

Do Stay Aware of Loan MITC – Loan Most Important Terms and Conditions (MITC) is a document supplied by lenders when they provide a loan agreement, but most borrowers fail to read it. This document will have a quick reference to the common conditions associated with loan repayment, foreclosure, repossession of property and several other things. If you read it carefully, most of your common queries can be solved, which in turn can help you make a well-informed decision. Furthermore, most details are always concealed in the fine print, so go through every term and condition.

Do Claim Tax Benefits – You may not get tax deductions on LAP upfront, but you can avail benefits on a case basis. For instance, if you use the loan amount to buy a new property, you can claim tax deductions of up to INR 2 lakh on the interest that you paid under the IT Act’s Section 24B. Under Section 37(1), you can claim expenditures such as LAP document fees as business expenses.


Don’t Borrow More Than What You Can Repay – Though it’s possible to avail high-value loan amounts against your property, don’t borrow more than what you think you can repay. Determine this by evaluating your debt-to-income ratio and see how much you can set aside for the monthly installments.

Don’t Fall Prey to Advance EMI Traps – Loan agents will often persuade you to pay advance EMIs saying that you can benefit from saving on interest. Don’t fall prey to this trap. You cannot benefit from this unless you spend a part of the principal loan amount in advance. Advance EMI is nothing but making early payment of your EMI that is due for next month.

Don’t Ignore Credit Score – Your credit rating is an important consideration while processing the loan application even though LAP is a secured loan. If you have a good credit score, you can avail a loan with favorable terms and improve the chances of your application getting approved. Keep in mind that all your credit instruments are linked to one another through your credit rating. So, maintain a high credit score.

Keep these do’s and don’ts in mind before applying for a loan against property so that you can follow the right ways and avoid the mistakes to get a loan with favorable terms. Take a note of the loan against property documents required and apply for it right away.