It is quite exciting when you decide to use your commercial or residential property to secure funds for your new/existing business venture or invest in a new property. Moreover, due to the easy availability of LAPs, you can afford to dream big today. However, sometimes, it can be quite a hassle if you are unaware of the details and steps needed to go ahead. 

One of the most important factors impacting your property loan is your credit score. Overlooked by many, surprisingly, it affects your loan against property interest rate. So, the overall consensus from finance gurus is that you must maintain a robust credit score if you are looking to save your hard-earned money on your LAP.

Top 7 Reasons Why Your Credit Score Affects Your LAP

Here is why you should not be underestimating your credit score.

• Lower Interest Rates

Credit scores can actually influence the loan against property interest rates offered by lenders. Here is a simple breakdown of it. Suppose you have a very high credit score; it is a win-win situation for all. It would directly qualify you for lower interest rates as it will pose near zero risk to the lender. On the contrary, if you have a low credit score, you may have to pay sky-high interest rates. Hence, depending on your credit score, you can consider long-term finance planning.

• Higher Loan Approval Chances

This is directly related to the above factor. If your credit score is low, your lender may see you as a potential risk. Chances may be that they don’t even approve your loan. A high credit score would directly mean you have a high chance of getting your loan sanctioned easily and would technically have nothing to worry about except repaying the loan on time.

• Low Down Payment Requirements

With a low credit score, you should prepare to pay a huge chunk of your money just for the down payment. However, people with a rock-solid credit score that is almost perfect would have to pay a minimal amount as a down payment besides the already low interest rate loan.

• Favourable Loan Terms

Loan terms define the terms and conditions of compliance. In other words, it would cover things like loan duration or the schedule for repayment. People with high credit scores will receive much more favourable terms for the total duration and can even have a flexible repayment schedule. At the same time, people with low credit scores may have to face a tight time slot for repaying and clearing the dues. This would also directly impact whether individuals will be able to secure the LAP.

• Reduced Mortgage Insurance Costs

PMI, also known as private mortgage insurance, is an insurance that lenders ask for so as to protect themselves against default. The way this works is that PMI adds to the monthly cost of the mortgage. So, generally speaking, this tends to increase the overall expense of property ownership. If you have a good credit score, your lender may waive the PMI. So, you receive the best of both worlds: a low or no PMI as well as a low interest rate loan. Or else, you will at least have quite decent insurance rates. This will automatically bring down the total cost of borrowing, making your loan affordable. However, things would not look so bright for people with low credit scores. Their overall expenses would spike up as a result.

• Higher Total Loan Amount

Now, if you were someone who thought that even with a low credit score, you could at least get a full loan but have stricter rules, you are completely wrong. In reality, it will heavily affect the total amount you will be able to qualify for. With a low credit score means you may not qualify for the full amount you are seeking. Moreover, a high loan against property interest rate will make things more challenging. Now, people with higher credit scores will have a good chance of securing at least ninety per cent of the loan amount. This is because lenders will be able to assess their loan history and trust them as responsible borrowers who pay off their loans in due time.

• Minimal Loan Fees

Taking a huge loan comes with its pros and cons. For instance, if you have a high credit score, it will result in you having lower fees. However, for individuals with a low credit score, lenders might charge you a higher loan fee, which can actually burn a hole in your pocket. Typically, it is a must-charge and includes loan origination fees.

Conclusion

If you are seeking a loan against property, be it for business or any other reason, you must be cautious about your credit score. Don’t let it dip, and if possible, pay your dues on time and maintain at least a decent credit score. It is, after all, your credit score that would decide your loan and the expenses surrounding it.