Loan Against Property Mistakes: Avoid These 7 Costly Errors Before You Apply
Applying for a Loan Against Property (LAP) can unlock the financial potential of your real estate assets. Whether you’re expanding your business or managing personal emergencies, LAP offers lower interest rates and longer tenures than unsecured loans. However, common Loan Against Property mistakes can result in rejections, penalties, or financial distress. In this guide, we’ll explore 7 critical errors to avoid and how to make informed borrowing decisions.
1. Overestimating Your Property’s Value
One of the most frequent mistakes borrowers make is overestimating the market value of their property. Lenders do not always consider the property’s market or emotional value; instead, they evaluate based on circle rate or government valuation, location, legal status, and condition.
Lenders usually offer 60%–75% of the property’s assessed value. If you demand a higher amount assuming inflated value, your application may be rejected or sanctioned for a lower amount than expected.
✅ Tip: Always get a professional property valuation done before applying.
2. Ignoring Your Credit Score
Your CIBIL score or credit report directly influences your eligibility, interest rate, and processing time. A score below 700 may lead to high interest rates or outright rejection.
According to TransUnion CIBIL, maintaining a score above 750 increases your loan approval chances significantly. Ignoring this metric is a major loan against property mistake.
✅ Tip: Check and improve your credit score before applying. You can get a free report from CIBIL.
3. Overlooking Hidden Charges
Borrowers often focus only on interest rates, ignoring hidden fees such as:
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Processing fees
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Legal and technical verification charges
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Prepayment/foreclosure penalties
These can inflate your total repayment amount considerably if unaccounted for.
✅ Tip: Ask for a Detailed Loan Agreement and demand transparency about all charges.
4. Choosing the Wrong Loan Tenure
Opting for a short tenure might result in high EMIs, while a long tenure increases your interest outgo.
For instance, a ₹50 lakh LAP for 10 years at 10% interest leads to an EMI of ₹66,000. For 15 years, EMI reduces to ₹53,000 but total interest paid increases.
✅ Use a Loan Against Property EMI Calculator to choose the ideal tenure.
5. Not Comparing Lenders
Settling with your existing bank without comparing others could cost you lakhs. Different lenders offer varied:
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Interest rates
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Processing timelines
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LTV ratios
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Service levels
For instance, HDFC might offer better rates than ICICI depending on your eligibility.
✅ Tip: Use CreditCares’ assistance to compare top lenders and secure the best deal here.
6. Skipping Legal Due Diligence
Lenders demand clear and dispute-free ownership documents. Properties with unclear titles, inheritance disputes, or missing permissions can lead to rejections or legal complications.
✅ Tip: Ensure you have the property’s sale deed, tax receipts, completion certificate, and encumbrance certificate ready.
7. Rushing Without Reading the Fine Print
From foreclosure clauses to interest reset conditions (in case of floating rates), ignoring the fine print can lead to unwelcome surprises.
Some loans come with terms like:
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No prepayment in the first 6 months
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Annual interest rate revision
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Mandatory insurance
✅ Tip: Read the full loan document or consult legal professionals before signing.
✅ Final Thoughts
A Loan Against Property is a secured, powerful tool for financial empowerment—but it demands careful planning. Avoiding these common Loan Against Property mistakes can save you time, money, and stress.
👉 Need expert help? Talk to a CreditCares advisor now and find the best LAP plan for your needs.
