New financing concepts are emerging every day for a loan against property in India. Also, remembering all the details about the same is never possible. One such trend of loan against property financing service is risk-based lending.
It is an interest calculating criteria based on the risk factors involved for the financing organisation irrespective of a property mortgage. In simple words, if a financing agency feels that the customer would not be able to repay the loan amount and they risk losing their money.Also, the Interest Rates on Loan Against Property is quite lower than other loan options. Then the interest rate would be comparatively higher for providing the service.
Whereas, for customers who have excellent credit and repairing history the interest percentage would be much lower. If you want to know how risk-based lending can affect a loan against property eligibility, then make sure to read the following points.
1. A Credit Score is Critical
When you are trying to get a loan against property, most financing agencies focus their attention on the asset that you are looking to put as collateral. However, in the case of risk-based lending, the credit score plays a more critical role than any other factor.
This is because financing services like the risk-based loan against property are created for people who borrow regularly. The only way for an organisation to check their debt history is through a credit score. That is why your credit history and count should always be maintained if you want to enjoy this particular financing options.
2. Property Valuation
Traditionally, taking a loan was all about the cost of your property. It means you only had to submit the relevant Loan Against Property Documents Required to acquire the funds successfully. But since the innovation of risk-based lending, this particular eligibility factor has taken a backseat.
Even if the value of your property is high, there are still chances of you not being able to acquire a loan. It usually happens due to the lack of decent CIBIL score. So if you still believe that your property will get you through while taking credit, then you need to reconfigure your opinion.
3. Risk Assessment Methods
Another important factor which is affected by risk-based lending is the overall application assessment process. Every company that provides financial assistance has their way of calculating the risk involved. The lack of a standard method might give you different responses from different institutions while applying for a loan against property.
Also, some financial agencies use loan against property foreclosure calculators to predict the future situation. That is why I recommend you apply to at least two banks or financial organisations after reading their eligibility criteria. It will increase your chances of approval.
4. Interest Calculation
The method of interest calculation takes the biggest hit when a lender decides to go with risk-based financing. It is because there are no pre-decided interest rates whatsoever and the entire amount will depend on a customer's offering to the agency.
This means if you offer them a risk-free transaction with a good credit score then you will be able to receive lower interest rates. But, in case, you cannot do so, then the financing firm will have no other option than to increase the rate of interest on your transaction.
5. Processing Time
The processing time for such a loan against property is comparatively more than other options. The financing firm not only has to cross check the valuation of your property but also has to create a risk assessment report. These steps take a lot of time which ultimately results in an extended application processing time. To deal with this, you should always apply well in advance.
Additional Read: Tips to Boost Your Loan Against Property Eligibility
Arwind Sharma is a financial advisor with an experience of more than 7 years. He has worked for topmost financial firms in India and has been a visiting faculty at many reputed institutes in India. Currently based in Gurgaon, Arwind Sharma is a name to reckon with when it comes to financial management for big brands. A post-graduate in business economics, he is an alumni of Princeton University, USA. During his free time, Arwind teaches children from marginalised sections of society and also work on his blog.