How to Get a Loan against Property with Bad CIBIL Score

What is a Loan against Property?

In simple words, a LAP is a secured loan service provided by banks, NBFC's, and housing finance companies wherein you can mortgage your residential or commercial property against a reasonable loan amount. These loans usually come with many benefits, such as lower interest rates than personal or business loans, quick disbursal times, and higher loan values.

Whether you operate a business of your own or are a salaried professional, you can avail of this service if you have a property in your name. You can apply for a loan against property online if you meet the essential eligibility criteria set by the lender.

Is a CIBIL score required for a loan against property?

You might have come across people whose loan requests were rejected because they applied for a loan against property with lousy CIBIL scores. That is a common problem among borrowers, but it does come with a set of solutions that we will understand in the next section.

When you apply for a loan against a property, your bank will collect several documents from you, including your income and address proof. Based on these details, they determine your CIBIL score, which is a 3-digit number given to every borrower. Measured by the Credit Information Bureau of India, the score depends on various factors, such as how regularly you are repaying your current EMIs, if there have been any missed EMIs, and finally, your patterns of credit utilization in the past.

Banks and other lenders use this CIBIL score to judge if a person who has applied for a loan will be able to repay it and will not default on the EMIs. Credit scores above 800 are considered excellent, with banks offering the best deals to these people. Most lending institutions deem a rating below 800 but above 650 acceptable, while a credit score below 650 is thought to be too low.

Applying for a Loan against Property with Bad CIBIL Score

A loan against property is a safe mode of borrowing funds if you have a low credit score. The property documents are already mortgaged, and the loans are approved only up to 60-70% of the property valuation. This serves as a form of assurance to the lender, who views mortgaged properties as security deposits to recover the debt in case of defaulted payments.

The good news, then, is that you might be eligible to apply for a loan against property online even if your credit scores are low. Bear in mind that interest rates on secured loans are usually lower than personal loans, but they can be higher than the norm if you have a credit score under 650, as most banks will see you as a risky client. Be prepared for lower loan amounts, higher processing charges, and longer processing times. You might also have to submit extra documents related to property taxes, utility bills, and proofs related to income channels and tax history.

Additional Read: Questions About Loan Against Property Answered

The Importance of a High CIBIL Score

Having a low credit score is something you should take very seriously, as it can harm your credit choices in the future. If you fall too far below 650, it is crucial to start improving your score at the earliest. You can do this by clearing previous debts, taking out loans with longer repayment tenures, and keeping the number of loan applications and borrowed amounts in check. Having a stable job with a reputed company can help bring down the bank's interest rates.

Conclusion

Taking out a loan against property for CIBIL defaulters is challenging but not impossible. Though the terms of the loans will not be as good as for those with a high CIBIL score, it's unlikely that the bank or financial institution will show you the door. However, you will need to be patient, make extra efforts, and be mentally and financially for high interest rates and other charges.

Additional Read: 10 Ways to Improve Your CIBIL Score

Disclaimer:

 ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. Please note, loans related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing.

ICICI Securities Ltd. acts as a referral agent to ICICI Bank Ltd. for loan against property related services & the loan facility is subjective to fulfilment of eligibility criteria, terms and conditions etc.