Loan against property (LAP) is classified as a secured mortgage loan because the applicant provides his/her legally owned property as a security against the loan. The lender typically lends about 50% to 60% of the property, whereas other private lenders offer about 80% of the property value. The sanctioned loan can be used for different purposes. Moreover, the interest rate for LAP is usually lower as compared to a personal loan.
Many experts believe that a loan against property is a safer choice than a personal loan because of its secured nature. Plentiful people in India use this option to obtain financial aid. However, there are still some misconceptions surrounding the concept of LAP. Don’t worry! We are here to help you and are going to bust all such myths:
Myth 1# The approval process is stringent.
Availing of a personal loan is relatively easy. Similarly, availing of a loan against property is not much of a hassle. The borrower needs to meet the eligibility criteria of LAP set by the respective lender to get the loan. Moreover, most lenders offer an online application process, making it easier to assess your loan application and process your loan.
Myth 2# You have to pay high-interest rates.
Most people assume that the interest rates on loan against property would be high due to the skyrocketing property prices these days and the subsequently high amount availed as a loan. However, it’s important to note that the interest rate of LAP is calculated based on a variety of factors. These factors are lending amount, type of property, loan tenure, valuation of your property, etc. Hence, the interest rates provided by various lenders differ. Most lenders, however, allow you to negotiate the interest rate on loan against property based on your credit score and the valuation rate for the property.
Myth 3# The usage of the property that is kept as security is not allowed.
This is a common misconception. But, it’s important to note that you are pledging property with no constraints on how you can use it. This means that as long as you aren’t regularly defaulting on payments, you use property as per your needs while pledging it.
Myth 4# High income is needed to avail a loan against property.
Contrary to this myth, you do not need to be in the “high-income class” to get a loan against property. Most lenders have a minimum income requirement for salaried and self-employed borrowers to qualify for this type of loan. As long as you can convince them of your ability to repay the loan, it doesn’t matter whether you make a lot of money or not.
Myth 5# The sanctioned loan amount is based on the price at which the property was bought.
This is false since the lender determines the loan amount based on the collateral’s current market value. This is calculated by the lender’s evaluators and a few other factors that are taken into consideration, such as the property’s age and current condition. Regardless of how much a property was worth at the time of purchase, a poorly managed property could be less desirable and fetch a lower sanction.
Myth 6# The lender takes possession of the collateral.
This is not true. In fact, as long as you don’t default on payments, you keep full possession of the collateral. This misunderstanding stems from the way gold loans are handled; however, with a loan against property, all you have to do is provide the lender with the property documents.
Myth 7# LAP involves shorter tenure
This is false. Loan against property usually has a longer tenure, i.e., up to 20 years (varies lender to lender). Other loan options, such as a personal loan, a gold loan, or a top-up home loan, usually have shorter tenures of five, three, or 15 years, respectively.
Myth 8# Only residential property can be used for collateral.
The most common misconception among most borrowers is that LAP may only be used for residential properties. However, that is not the case. Both residential and commercial properties are qualified for a loan against property.
Applying for a loan against property through Finnova Advisory is easy, hassle-free. We have formed strong partnerships with various banks and financial institutions. If you are stuck in any stage of the loan application process, we can help you resolve it. Apart from this, you can get cashback and vouchers when you are applying for a loan through us. So, what are you waiting for? For more information, contact us today.