7 Reasons why a Loan Against Property May be Declined

Banks gives us the leverage to use their various financial instruments in order to fund our various events in life which need heavy financial backing. These loans are sometimes given against a certain security or are sometimes unsecured loans.

One such type of secured type of loans is Loan Against Property. Usually, before sanctioning this loan in which a certain property of yours is kept as a collateral, the bank scrutinizes each and every aspect to fulfil its criteria before sanctioning this loan. Not fulfilling the eligibility criteria will result in rejection of your Loan against Property. To tick all the right boxes, you have to maintain a good credit score by ensuring that all dues are paid off, clearance of previous loans and ensuring a boost in your income source to show yourself as a credible credit holder. 

A Loan against Property may still get rejected on some grounds. These are:

Unstable employment status

For a person going for a job, the first and foremost security that he/she will give is their employment status which serves as a source of income for them and which will help them repay the loan which they have taken.

A bank holds this aspect in a very high regard. A dwindling job status may ruin a person’s chance to get a loan sanctioned in his name. The type of employer is also scrutinized before a loan is sanctioned as to whether that company is stable or not. Though you may have a property acting as a collateral most of the time these properties turn out to be NPAs for the banks. To guarantee the sanctioning of the loan just make sure you don’t switch jobs too often.

Insufficient Income

For a loan to be passed by the bank they need to check out the repayment factor very seriously and you have got to impress them with a handsome salary record which will give them the confidence that they are entering into a lost venture and that they will get their funds recovered in time.

If the bank feels that you will be unable to pay the EMIs then they will straight away cancel your application. Though you can again re-apply afterward if you can get a raise in your salary or seek another source of income or by reducing the loan amount.

Rejection of previous loan application

A poor track record will definitely jeopardise your chances of getting a loan sanctioned. A bank has all a record of its previous applicants who were previously rejected. And if by any means they do not have this list in their database, obtaining the history of loan application inquiries from credit bureaus is also not a problem.

If you have been previously declined a Loan Against Property and if you have re-applied for a fresh loan from the bank, the rejection will be available in the credit profile check and eventually, it will affect your creditworthiness.  Therefore, avoid applying for loans without any reason.

Illegal Property

In the case of Loan against Property, the bank will definitely assess all the documents of the property that you are keeping as a collateral. Your property should be cleared of any legal issues such as encumbrance issue, land issue or any other issue.

The bank will go all the way to ensure that it’s not fraudulent. The builder of the property should also be listed with the bank and should have a good track record.

If you keep a property, as a collateral, by a builder not approved by the bank, chances of getting the loan approved are pretty slim. And if the builder is not ready with clear property documents or it’s in a negative listed area, then the bank would definitely not be in a position to disburse the loan and will eventually close it.

Lack of Interim Security

When you are seeking for a Loan against Property for purchasing an already constructed property, your bank may seek an interim security for the loan until the new title deed in your name is handed over to them. This security can be in the form of another property of the same value, equity and even guarantees from third-party guarantors.

Not being able to provide an Interim Security will definitely ruin your chances of getting a loan.

Bad Credit History

A good track record will definitely make you a good credit holder. Past records are definitely checked when a bank sanctions a loan to you and if you have a low CIBIL Score which is a result of your inability to pay-off dues in the right time, then it will definitely affect the sanctioning of your loan.

A bad credit history will definitely worsen the situation.

Does Not fulfill Bank’s Policy

Sanctioning of the loan depends on the bank’s policy. Sometimes these may prevent the bank from giving the loan if they find a fault in the area of construction or the credit profiles is negative.

The only way out of this is to talk to the bank officials and find a way around it through collaterals and guarantors. Also, sometimes banks don’t fund buildings which are 20 years and older.

So, you have to take care of these aspects before going for a Loan against Property which will definitely affect your position as credit holder.

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