Common Myths Regarding Loan against Property

Loan against Property or LAP has always been a popular way of getting extra funds for so many purposes such as for financial crunch or business or any other reason. But there are so many myths that revolve around the concept of Loan against property. In this article, we will burst these myths or some common misconceptions about loans against Property for better understanding related to LAP.

·         Myth 1: Taking loan at higher rates is better than pledging property or home as security

In case the loan the applicant has a very good credit score and history and has the property of worth the value then the Loan against Property can be a really good deal. It offers the person to avail larger amount of funds or loan amount at lower and better rate of interest that the person can easily pay in the form of monthly installments or EMIs. Compared to other loans LAP is more beneficial and have a lower rate of interests proving it the most valuable financial tool.

·         Myth 2: One cannot use the property pledged

It is one of the most common beliefs that once a property has been pledged by the loan applicant to the bank or financial institutions for availing loan, it cannot be used till the amount is repaid. This is not true because till the time of the tenure of the repayment of loan against property is not completed the property is the sole property of the person and the bank. In case the person fails to repay the loan, then the bank or the financial institution can undertake the property and sell it to recover the debt.

·         Myth 3: One can borrow the full value of the property as loan amount

It is a myth that a person can avail the full value of the property as the loan amount, but this is incorrect. The banks or financial institutions provide only 70 to 90% of the total of the property. Therefore, it is advisable to the applicant to always estimate the value of the property before applying for the loan against property.

·         Myth 4: One can only pledge residential property

This is a myth and not a fact. All the lenders provide loan against property to the applicant based on the property that is residential or commercial. Some banks or NBFCs also provide Flexi Loans on the pledged property.

Also read: Which is better Loan against Property or Gold Loan

·         Myth 5: A high-income level or bracket is required for the loan application

While applying for the Loan against Property, income brackets or levels of the applicant is not usually determined by the lenders and neither this affects the loan application. The value of the property is what is determined in the loan application.

·         Myth 6: High rates of interest

It is usually considered by loan applicants, availing a Loan against property that the rate of interest on such loan is quite high, which is far away from the truth. Since LAP is a secured loan, therefore, the lenders provide this loan on lower rates of interest.