Loans are a popular financial instrument used to acquire assets or meet urgent financial needs. However, getting a loan can be challenging, especially if you do not have a good credit score. Fortunately, an Instant Loan Against Property (LAP), also known as a mortgage loan, offers a viable option for obtaining a loan, even with no or low credit score. Let us discuss the benefits and risks of LAP loans to help you decide whether it is the right financial option. Additionally, we will explore how to calculate mortgage loans using a mortgage loan calculator.
Advantages of LAP Loans
Here are some of the advantages of LAP loans:
Lower Interest Rates
Since LAP is a secured loan, lenders offer lower interest rates than unsecured loans like Personal Loans. It is an attractive option for borrowers who want to save on interest charges.
High Loan Amount
The loan amount for LAP is usually higher than that of unsecured loans since the property’s value determines it. It is ideal for borrowers who need a lot of money to finance their needs.
Longer Repayment Tenure
LAP loans usually have longer repayment tenures than unsecured loans, making it easier for borrowers to manage their finances. The longer repayment tenure reduces the repayment burden and allows the borrower to pay off the loan in small instalments over a longer period.
Flexible Repayment Options
LAP loans usually offer flexible repayment options, allowing borrowers to select a repayment plan per their financial situation. Borrowers can choose the suitable tenure as per their monthly expenses and budget.
Easy Approval
LAP loans are easier to approve since they are secured by collateral. Even borrowers with poor credit scores can qualify for the loan.
Risks of LAP Loans
Given below are the risks of a loan against property:
Risk of Foreclosure
One of the significant risks of LAP loans is the risk of foreclosure. Lenders can foreclose LAP loans if borrowers fail to make loan repayments. They can then sell the mortgaged property to recover their loan amount.
Risk of Over Borrowing
LAP loans can lead to over borrowing, where a borrower takes on too much loan amount, leading to financial difficulties. It is essential to consider the needs and borrow accordingly.
Risk of Property Value Fluctuations
The property’s value can fluctuate, which can affect the loan-to-value ratio. If the property’s value decreases, the loan-to-value ratio can exceed the lender’s sanction limits, leading to higher interest rates or even loan rejection.
Risk of Prepayment Penalty
Some lenders impose a prepayment penalty if the borrower repays the loan before the agreed-upon tenure. It can increase the loan cost and reduce the savings on interest charges.
There are some other considerations that borrowers should consider before taking a LAP loan.
- High processing fee: LAP loans often have a high processing fee, which can significantly burden borrowers.
- Credit score impact: Failing to repay the LAP loan can negatively impact the borrower’s credit score, making it challenging to obtain loans in the future.
Mortgage Loan Calculator
A mortgage loan calculator is an online tool that helps borrowers calculate their monthly loan EMI, total interest payable, and the loan’s total cost. Mortgage loan calculators can help borrowers estimate the monthly EMI and decide on the loan amount and tenure that is affordable for them.
How to Use a Mortgage Loan Calculator?
To use a mortgage loan calculator, enter the loan amount, the interest rate, and the tenure. Once you have entered all the necessary information, click the calculate button to see the estimated monthly payments, the total interest paid over the loan term, and the total amount paid back to the lender. You can proceed with the LAP loan application if the estimated monthly payments fit your budget.
Conclusion
LAP loans can be an attractive option for those who own a property and require a large amount of money. However, before applying for one, borrowers must understand the benefits and risks of LAP loans. The best part about these loans is that one can avail them even with a low credit score.
