Taking a loan against property in India can be an effective way to utilise property and unlock funds for personal or business needs. Secured against your property, this type of loan typically offers a relatively higher loan amount at lower interest rates compared to unsecured loans. However, borrowers often make mistakes that increase costs, delay disbursal, or create compliance issues. Understanding these pitfalls is essential to make smart borrowing decisions and ensure that your loan against property (LAP) works in your favour, and not against.
Why Borrowers Make Mistakes with Loan Against Property
Many LAP borrowers rush the process, assume that all lenders are the same, or focus solely on monthly EMIs without considering total costs. Overlooking fees, insurance, and other loan terms can turn what seems like a convenient borrowing option into a costly financial misstep. To avoid these issues, it’s important to understand the most common mistakes and take proactive steps before applying.
1. Not Comparing Interest Rates Across Lenders
One of the biggest mistakes is not comparing loan against property interest rates across banks and NBFCs. Rates vary widely based on credit profile, property valuation, and lender policies, typically ranging from 8.5% to 13% per annum in 2025. For instance, HDFC, ICICI Bank, SBI, Bajaj Finserv, and other providers may offer different rates and special schemes for existing customers. Failing to compare these can cost you thousands over the loan tenure. (Source A) (Source B) (Source C).
2. Not Negotiating the Offered Interest Rate
Applicants often accept the first rate quoted, even though lenders may be willing to offer better terms based on credit history or customer relationship. Always negotiate and ask if preferential rates are available. A small reduction in the interest rate can lead to substantial savings over the loan tenure. (Source A) (Source B).
3. Ignoring Processing Fees and Prepayment/Foreclosure Charges
Many borrowers focus only on interest rates and ignore other costs like processing fees, legal charges, valuation fees, and penalties for prepayment or foreclosure. When overlooked, these charges can significantly increase the total cost of borrowing. (Source A) (Source B).
4. Choosing an Unsuitable Tenure
Selecting the longest tenure to reduce monthly EMIs may seem attractive, but it increases the overall interest outgo. Conversely, a very short tenure may strain your finances. Balance affordability with total repayment to optimise your borrowing. (Source A) (Source B).
5. Not Reading the Loan Agreement or Fine Print
Rushing through or skipping the fine print can result in missing clauses about interest resets, hidden fees, and lender rights in case of default. Always read and understand the loan agreement thoroughly before signing. (Source A) (Source B).
6. Not Factoring in Disbursal or Turnaround Time
Unlike instant personal loans, LAP requires property verification, documentation checks, and approvals, which can take days or even weeks. Not planning for this turnaround time can disrupt urgent financial needs.
7. Skipping Loan Protection Insurance
Loan protection insurance may seem like an added cost, but it safeguards your family and property in the event of disability, job loss, or death. Skipping this protection can leave borrowers exposed to financial risk.
8. Underestimating the Total Cost of Borrowing
Many borrowers fixate only on the EMI amount while ignoring the overall financial impact of a Loan Against Property. While online EMI calculators are helpful to understand how your loan will be amortized and what your cumulative interest outgo will be, they don’t capture other expenses such as processing fees, legal charges, valuation costs, or loan protection insurance. These additional outlays can significantly increase the total cost of borrowing. Always look beyond just the EMI and factor in every element including the fees, charges, tenure, and insurance, before finalizing your LAP. (Source A) (Source B).
9. Rushing a Balance Transfer Without Evaluating Costs and Credit Impact
Transferring a LAP to another lender may reduce interest rates, but often ignores costs like processing fees, valuation charges, and legal fees. Multiple inquiries and rapid transfers can also impact your credit score. Evaluate the net benefits before deciding.
10. Not Understanding Part-Prepayment and Foreclosure Clauses
Partial prepayment or full foreclosure clauses vary by lender. Not understanding these rules can result in heavy penalties or restricted repayment options. Check the permissible prepayment amounts and associated fees before finalizing the loan.
How to Get a Loan Against Property in India
Understanding how to get a loan against property can simplify the process and prevent mistakes:
- Application: Submit your LAP request online or in-person, including property details and financial information.
- Document Submission: Provide KYC documents, income proofs, and copies of property papers.
- Verification: The lender evaluates your property documents and valuation.
- Sanction Letter: Upon successful evaluation, lender provides sanction letter with applicable terms and conditions, including the loan against property interest rate.
- Disbursal: Once the property documents and value are evaluated, and the LAP sanction letter is accepted by the borrower, the lender processes the disbursal of the LAP, and the disbursal amount is credited into the borrower’s account.
Working with the Rurash team can help streamline your loan against property (LAP) process, compare loan against property interest rates, and ensure complete transparency by helping you identify and avoid hidden costs.
Key Takeaways
- A loan against property in India is a flexible financial solution, but borrowers must carefully evaluate interest rates, tenure, fees, and terms to maximise benefits.
- Comparing loan against property interest rates across lenders is crucial to avoid overpaying over the LAP tenure.
- Proper documentation helps borrowers avoid approval hiccups, while being aware of prepayment and foreclosure clauses ensures there are no surprises in managing the loan during its tenure.
- Working with the Rurash team can make the entire process seamless — helping you identify the best lenders, minimise hidden charges, and streamline your overall loan against property application efficiently and transparently.
- Planning repayment capacity and considering loan protection insurance ensures that the property remains secure, even in unforeseen circumstances.
- Knowing how to get loan against property efficiently saves time, reduces financial risk, and improves overall borrowing experience.
Take control of your finances by avoiding common mistakes and making informed decisions about your loan against property in India. The Rurash team can guide you through every step, ensuring a smooth, transparent, and cost-effective borrowing experience tailored to your financial goals.
Frequently Asked Questions
1. What documents should I double-check before applying for a Loan Against Property?
Before applying for a loan against property in India, ensure you have all essential documents in order. Key documents include: KYC proofs (PAN, Aadhaar, Passport), income proofs (salary slips, IT returns), bank statement(s), and property documents (title deed, municipal tax receipts). Verifying these documents in advance can help avoid delays in LAP sanction and disbursal.
2. How can I avoid overestimating my property’s value?
Overestimating your property value can lead to unrealistic loan expectations. Get a professional property valuation done and compare it with market trends in your area. Lenders will also conduct their own assessment, so having an accurate estimate upfront ensures a smoother application process.
3. Does taking a shorter tenure always help in LAP?
Not necessarily. While a shorter tenure reduces total interest paid, it increases your monthly EMI burden. Balance your repayment capacity with interest savings. Choosing the right tenure is a crucial step in how to get loan against property successfully.
4. Should I apply for LAP without checking my credit score?
No. Your credit score significantly impacts the loan against property interest rate offered by lenders. A higher score can qualify you for lower rates and better terms. Check your credit score before applying to avoid surprises and improve your approval chances.
5. Can I use a Loan Against Property for any purpose?
Yes, LAP funds can be used for multiple purposes, such as business expansion, education, medical emergencies, or debt consolidation. However, some lenders may have restrictions, so it’s important to clarify permitted uses during the application process.
6. How to avoid hidden charges in LAP?
Read the loan agreement carefully and clarify all associated costs, including processing charges, legal fees, valuation expenses, and prepayment penalties. The Rurash team helps you identify and minimise hidden charges, ensuring complete transparency and a smoother loan against property experience.
7. Is it a mistake to apply with multiple lenders at the same time?
Applying with multiple lenders simultaneously may negatively affect your credit score due to multiple inquiries. Instead, compare loan against property interest rates and terms first, and then submit applications selectively to improve approval chances.
8. Does extending loan tenure always reduces the interest burden?
While extending tenure reduces EMIs, it increases total interest outgo. Evaluate both your monthly cash flow and overall repayment cost to determine if a longer tenure truly benefits your financial situation.
9. Can I lose my property if I default on LAP?
Yes. Since a LAP is a secured loan, your property is the collateral. Defaulting on payments may lead the lender to initiate legal proceedings to recover dues, including foreclosure of the property. Always plan repayments carefully and consider loan protection insurance to mitigate risk.
10. How do I choose the best lender for Loan Against Property?
Compare interest rates, processing fees, prepayment charges, disbursal timelines, and customer service across banks and NBFCs. The Rurash team simplifies this process by helping you evaluate options effectively, ensuring you secure the most competitive loan against property interest rates and enjoy a seamless application experience.