Common Myths About Loan Against Property

When it comes to property matters, most Indians prefer discussing things with their friends and family members rather than seeking the guidance of a professional or an expert. This often leads to false truths and confusion on these crucial matters. One such field where there are too many myths floating is loan against property. If you are in financial distress, it is likely that you are exploring LAP, a loan against property, but you need to bear a few things in mind before opting for the same.

The interest rates on loan against property have been slashed recently. So, if you or someone you know is in need of a business loan or is in some financial need, opting for a loan against property might be the right thing to do. However, it is also vital that you do not get swayed by misinformation. We are here to bust some common myths about loan against property.

• Myth #1: Property, once pledged, cannot be used.Many people believe that if you have availed of a loan against property, you will lose your right to use it. This is nothing but a myth. If you have not defaulted on your payments, you are still the owner of the property, and thus, the property stays in your possession. Even if you pledge it, there are no constraints on the usage.However, as LAP is a secured loan, in case you default on the repayments, the lender would be able to auction the property.
• Myth #2: LAP can only be against residential property.Another misinformation about loan against property is that it can be against residential property only. You would be eligible for LAP, regardless if the property is residential, commercial or lease-rent discounting depending on the lender.
• Myth #3: One should always go for the loan with the lowest rates.This may seem tempting, but remember, this too is a myth! You need to check whether, along with a low rate, the institution is also charging higher penalties for pre-payments or any other hidden costs and fees etc. Unless you are cautious about these seemingly ‘small’ details, you may end up paying much more than what you were expecting.Reading the offer document in detail is very important. Make sure you understand all terms and conditions well enough so as to avoid any heartburn later.
• Myth #4: Pre-payment of LAP will be a costly affair.Well, this is not completely true. Pre-payment charges are levied generally in the initial few years. However, with time these charges may be reduced.It is also a fact that while pre-paying your loan against property, some lender companies charge you while some do not. Some banks/ financial institutions allow a pre-payment up to a certain percentage of the outstanding amount of loan, in one financial year.
• Myth #5: You can borrow the full value of your property.Sadly, this is also a myth. You will not be given a loan corresponding to the full value of your property. While some lenders offer a generous 70% of the property as a loan, there are some who offer only up to 50%.Apart from the company policies, these numbers also depend on the resale value of the property, it is, therefore, highly recommended that you first get a fair estimate about the value of the property that you are going to pledge.
• Myth #6: If your Credit Score is high, LAP is guaranteed.If you are someone who enjoys a good credit history and never miss your EMIs, then your LAP may be passed easily, however, it is not an eligibility criterion. Your CIBIL score will surely be taken into consideration when you apply for a loan against property, but remember that it is not the only deciding factor.

To Summarise:

Loan against property is a great financial aid that you can avail in times of your business or personal requirements. Longer tenures and easy to pay EMIs are some key benefits of LAP. The rates offered are quite attractive. All in all, loan against property is a great option if you steer clear of the myths and understand the product better.