For anyone who is looking for a loan, the importance of a good credit rating is well known. A poor credit score could mean that the loan application is rejected right at the first stage. However it is essential to mention here that this is the case in most instances, but there are some loans that can be taken even with a low credit rating. These are loans that are taken against an asset; the asset serves as collateral which assures the lender about safety of their funds in case the borrower defaults. The asset makes up for the lack of a good credit score. Loan against property is one such option for those with low credit score.
Though the name is self-explanatory let us get a brief overview about loan against property. The borrower can take a loan against a commercial or residential property. The loan amount varies from 40% to 60% of the property value; this depends on the lender's policies. Loan is available against only those properties for which the applicant has full control without any restrictions what so ever. When a property is jointly owned then all owners have to be co-applicants to the loan.
Just like a personal loan, loan against property can be used as required by the user and helps the borrower to fulfill their fund requirements for miscellaneous purposes. The usage is not limited to a specific purpose. If you have a low credit score then getting a personal loan could be a challenge for you. Personal loans are unsecured loans, thus the lender would like to be really sure about the creditworthiness of the borrower before sanctioning a loan. A low score signifies a high risk borrower, no lender will like to lend to someone who cannot be trusted to repay the dues on time especially so if it is an unsecured loan.
If you want funds for miscellaneous purposes then you could explore the option of borrowing against your property. Here you are not required to give up the use or ownership of the properly and can continue to use it. Credit scores do play an important part in getting a loan application approved and can get you concessional interest rates too. So when you apply for a LAP then a good credit score could definitely make it easier for you to get the loan approved.
Having said that if you score is low the reluctance of the lender to sanction you a LAP as compared to a personal loan with a low CIBIL score will be less. This is due to the fact that LAP is secured loan so the lender is cushioned from defaults. While the lenders do want to get their dues back on time, but in case of a LAP if there a default they can used to mortgaged property as a fall back option.
If you have a low credit score then you should make all efforts to improve it. A LAP can actually help it better it if you choose to be responsible borrower in future. Getting a loan against an asset may be possible in some cases even with a low rating but this may not hold true in case of other loans.
So once you do get a loan then make sure that you are a responsible borrower and you do pay all your EMIs on time. This will create a good credit trail and will help you better your credit rating.