It’s not surprising that many people are in a financial crunch and looking for loans in the current COVID-19 pandemic. Whether its job losses for the salaried or impact on business for the self-employed, the situation is tough for so many out there. If you’re facing an emergency and in dire need of funds, then you can consider availing Loan Against Property (LAP).
An LAP is a much better choice than a personal loan as you don’t have to stress even if your credit score is not good. This is because unlike a personal loan which is an unsecured loan, a loan against property is a secured loan and it involves collateral. While availing this loan, you can mortgage your commercial or residential property to a lending institution as security towards the loan you have applied for. This loan is assessed based on your property value as per the current market rate. Another major benefit of opting for LAP is that you can avail a higher loan amount in comparison to any other regular loan.
What’s the Least CIBIL score needed for a LAP?
A CIBIL score can be represented as a three-digit number ranging from 300 – 900. The Credit Information Bureau assigns it to every individual based on the CIR, or Credit Information Report. Credit utilization, repayment history, the total tenor of credits, credit mix, and the number of credit inquiries are the parameters used for calculating the credit score of an individual.
Generally, lending institutions prefer borrowers having 750 or higher credit score while approving a loan. However, as Loan Against Property is a secured loan, the lender has lower risks if the borrower fails to repay the loan amount. Hence, this loan is sanctioned even if the applicant is on the borderline. For example, many popular banks in India such as SBI, HDFC, ICICI grant LAP loans to individuals whose credit scores are in the range of 650, and some lenders can consider even lower scores.
Shed your worries aside if you are wondering whether your bad credit score would be taken into consideration or not. Since a Loan Against Property is a secured loan, the banks will not give much weight-age to your CIBIL score. As the interest rate over a LAP is less, there are chances that you may be charged a higher rate of interest over a LAP if you have a bad credit score. It’s always advisable to start improving your credit score by paying your EMIs on time.
Furthermore, you can improve your chances of securing a Loan Against Property by following these simple tips –
- Additional Co-applicant:Adding a co-applicant with a good credit history in your loan application can boost your chances of securing an LAP. This is because you are providing additional assurance to the bank. If your spouse has a good credit score, you can add him/her as your co-applicant.
- Guarantor for borderline cases: If your CIBIL score is on the borderline, then financial institutions may generally approve a loan against property for you without any hassles provided you have a guarantor having an excellent credit history.
- Seek Lower LTV: LTV or Loan to Value denotes the amount a borrower can get against the property from a financial institution. An LTV of 80 percent indicates that a buyer will have to shell 20 percent property value and the rest would be financed by the financial institution. If you have a bad credit score, then you can consider lowering the LTV from the lending institution.
- Approach Housing Finance Companies (HFCs): You can turn to HFCs if you have a low CIBIL score. Selected HFCs offer mortgage loans to individuals having a bad credit score. However, the drawback is that the application processing takes a lot of time and the interest rate may be quite high.
There are plenty of options available even if you have a bad credit score and want to avail a loan against a property. However, keep in mind that improving your credit score gradually will certainly prove to be beneficial to you in the long-run.