Sat. May 25th, 2024
Biggest Property

A loan against property (LAP) is a secured loan that you have procured against an asset (land, residential, or commercial), pledged as collateral. Also known as a mortgage loan, the said property or investment remains a guarantee for the lender until reimbursed the loan amount, which is 75%-90% of the pledged asset. With a couple of similarities to personal, gold, or business loans, LAP provides many other uses due to its low-interest rates and flexibility, such as the following.

  • Plans to expand your business
  • Medical expenses
  • Purchase of new property 
  • Amalgamating your debt
  • Higher education of children and their wedding expenses 
  • Renovation of existing property 
  • The need for working capital 

What makes securing a loan against the property so worthwhile?

  • A ticket to fulfilling your big dreams, irrespective of your current bank balance.
  • Mortgaging your property doesn’t mean losing control, as you remain the owner.
  • Given its secure nature, you can reap the benefits of low-interest rates.
  • The loanee is provided with flexibility when concerning the tenure of repayment.

Eligibility criteria for availing of LAP

  • The market value of the property
  • Credit score and history
  • Any current debts or financial obligations
  • Need to be in a specific age group
  • Current income and savings

Surprisingly, despite the ease of securing a loan against property and the associated benefits, specific distorted facts remain around it. Nonetheless, this blog will squash all the property loan myths, providing a reality check.

#Myth No.1: Once pledged as collateral, you cannot use your property 

One of the biggest myths around availing LAP is that you cannot use the property you have committed. That is far from the truth, as long as you pay your EMIs on time. Though required to submit property documents to the lender, the rights to use the property remain with the loanee unless he defaults. 

#Myth No. 2: The loan amount is only for restricted use

Another distorted fact about loans against property is their end-use. Exposing this misconception, LAP is used to fulfil various other financial needs, including medical treatments, higher education of children, and business expansion plans. 

#Myth No. 3: The mortgage loan can be availed only against residential properties

For many, obtaining a loan against property is only limited to residential type. Providing a fact check, you can procure a loan by pledging commercial properties as collateral, too. Warehouses and factories can be committed against as well. 

#Myth No. 4: Loan against 100% market value of the property

A popular misconception among borrowers is that they can secure a loan at 100% of the property value. Nevertheless, a lender can only provide a loan of 70%-80% of the property value. Factors such as the property’s age, location, and infrastructure play an essential role.

#Myth No. 5: The interest rate is high for LAP

The perception that there is a high-interest rate on borrowing a loan against property is entirely false but has a lot to do with the credit score, monthly income and capacity to repay. Generally, a score of 750 and above is in the safe bracket to obtain loans much faster.

#Myth No. 6: LAP is only for the high-income bracket 

No doubt, your level of income matters when applying for a l

an against property. However, lenders have different minimum income eligibility for salaried and self-employed individuals. Paying all your EMIs on time is another way to gain the lender’s confidence.

Myth No. 7: Loan against property has a shorter repayment tenure 

Given the enormous sum involved in LAP, stretching from ₹50 lakhs to ₹1 crore, the term can extend to 20 years so that you can pay your EMIs without any hurry. 

We are confident that the above blog helped clear your doubts and bust most of the myths about loans against property.

 

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