Loan against property or LAP is a type of lending where a certain amount is lent against a property you own as a loan. This property may be a piece of land, a flat, a home, leased property, etc., and the amount that you earn depends mainly on the property’s market value. As a secured loan, LAP typically has lower interest rates compared to unsecured loans, such as personal loans with a high loan amount.
Loan Against Property gives you, at reasonable interest rates, a loan amount of up to several crores. Also, there are no lines, no forms, and no information needed for pre-approved offers. It’s all set for you now. In addition to other considerations, such as the size of the loan, the market value of the property, and the tenure of the loan, your credit score plays a vital role in deciding the availability of the loan and its interest rate.
Why does your credit score matter so much?
Your credit score reflects your ability to repay the loan and is an indicator of your creditworthiness. It is a benchmark on which your default risk is assessed.
- It is also unlikely that you will be accepted for any form of a loan, including LAP if you have a low credit score.
- Also, you would be charged higher interest rates and likely offered a lower loan sum even if you are accepted.
- You can also opt for flexible tenures for loan repayment if you have a decent credit score. A flexible tenure guarantees that without dipping into your savings and impacting other important financial priorities, you will pay off the loan at your convenience.
What if you have a lower score?
If you have a low credit score, unlike banks, non-banking financial institutions (NBFCs) can still offer large amounts of credit. The interest rates on loans, however, might be higher. If you want to know more about the structure that CIBIL score India follows before allotting a certain rating to consumers, you can consult any financial representative at your nearest branch of PNB Housing.
Factors on which your credit score is measured
Based on many factors, your credit score is determined, including:
- Payment history: 35% of your rating is determined by this factor. It checks whether you have made your payments on time to date, which also indicates the likelihood that you will do so in the future.
- The amount borrowed: This is 30 percent of your credit score, which takes into account how much you owe. The greater the balance, the lower your score is.
- Length of credit history: 15% of your score is accounted for, and the longer your credit history, the higher your score is. Note that concurrently opening too many new lines of credit will cause your credit score to dive.
Therefore, your credit score is a significant eligibility check for your actions before your Loan Against Property is accepted. So, before applying for the loan, review your score from the CIBIL score India bureaus and correct any incorrect details in your report.