8 Common Myths About Loan Against Property Busted

Loan finance

A Loan Against Property (LAP)is an ancient concept and has been going since old times. When you require funds to accomplish certain goals or emergencies, you can use your residential or commercial property as collateral to get a LAP.

Once the loan is completely paid, the property documents will be returned to you with no further questions. Although Loan Against Property is an excellent loan option, and the interest rate is almost the same as Housing Loan rates, there are certain myths. Let’s discuss and bust these myths so that you have no doubts when you apply for a Loan Against Property

8 Common misconceptions About Loan Against Property that are untrue

  • You can’t utilize the Property you have provided as collateral

One of the widespread myths on Loan Against Property is that you are not allowed to live or use the property you provided as collateral or security to avail of the loan. This is wrong and has no truth to it. As long as you don’t default on your loan repayment and pay your loan EMIs within the due date, there will not be any issue regarding this. 

Also, Housing Loan rates are significantly lower than unsecured loans due to the pledged collateral. Therefore, make an informed decision on the repayment term. 

  • The end use of approved funds is limited

Another common misconception linked with Loan Against Property is that there are restrictions on the end usage of the approved funds. However, just like other types of loans like Personal Loans or Gold Loans, a Loan Against Property can also be utilized to fulfill any legally accepted purpose like medical expenses, higher education, wedding, home or business expansion, etc.

  • Only a Residential Property Can be provided as a collateral

Most of us believe that only residential property can be used as collateral to apply for Loan Against Property. However, this is untrue, as you can submit a commercial property, warehouse, factory, etc., as collateral to fetch a Loan Against Property. You just have to keep authentic documentation and maintain good creditworthiness to get quick loan approval and disbursal without any hassles.

  • A loan amount equivalent to the full value of the property can be availed

The LTV or Loan Value ratio is the actual proportion of the property value that a lender can offer as a Loan. However, while applying for Loan Against Property, most borrowers believe that they will get funds equivalent to 100% of the market value placed on the property. This is false, as the maximum amount a borrower can get depends on the property’s valuation. Usually, 70% to 80% of the property’s value is approved as a loan amount.

  • You must be in the High-Income group to Apply for a Loan Against Property

Yes, monthly income is crucial whenever you apply for Loan Against Property. But that doesn’t mean that borrowers belonging to a high-income group are only eligible for LAP. Even if you come under the moderate-income bracket, you can get approved for a Loan Against Property. However, you must maintain a good credit score and pay all your loan EMIs in time to increase your chances of getting a nod from the lender for a Loan Against Property.

  • LAP Has a High-Interest Rate

Again, there is a myth floating among the borrowers that you may have to pay a higher interest rate to apply for a LAP. However, since it is a secured loan requiring residential or commercial property as a collateral, the interest rate is similar to Housing Loan rates. It hence will be lower than unsecured loans, which are significantly higher.

  • The Approval Process is complicated

Yes if you compare the Loan Against Property process to unsecured ones like personal loans, it seems a bit more complicated due to the need for collateral. But in reality, the process is relatively easier as the documentation involved is significantly less than other loan types. Also, if you have good creditworthiness and the document is in the right order, processing will be completed faster, and the loan will be disbursed in no time. Also, some lenders allow you to apply for Loan Against Property online, enabling you to submit the application in minutes. 

  • The collateral is taken by the lender as a possession

When applying for Loan Against Property, you will be asked to submit your original property documents to the loan provider, but they are returned immediately after the full and final settlement is accomplished.

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