Synopsis: While applying for a loan against property (LAP), there are some myths that you should be aware of so that you don’t fall prey to them. Read along as we debunk those for you to make an informed decision!

There are various misconceptions about LAP, a secured form of financing that can provide you with significant amounts for a variety of demands.

By giving in to them, you risk not using them to their maximum potential and making a snap judgment. Therefore, in this article, we seek to expose these fallacies and debunk them so that you may make informed decisions. Let’s start.

What is a Loan Against Property?

A loan against property (LAP) is a secured loan offered by banks, housing finance companies (HFCs), and non-banking financing companies (NBFCs) against real estate, whether it be residential or commercial. When opposed to personal loans or company loans, these loans are typically have many benefits and are offered at cheaper interest rates and disbursed within a fair amount of time. 

The loans are available to anyone with a pre-owned home, whether they are salaried employees or independent contractors working in a commercial or professional environment. Additionally, the loan amount sanctioned is greater than what might be provided by alternative options.

Both paid employees and business owners benefit from loans secured by real estate. Self-employed folks may use this service if they need money to expand their firm. Salaried people can use the service to raise money if they are experiencing a sudden medical emergency that may call for expensive surgery or long-term treatment, or if they need to send their children to a foreign university for higher education. 

A LAP not only preserves one’s money but also offers low-cost EMIs with 15–20 year payback terms. The repayment load is lightened by the low-interest rates on these loans.

A loan secured by real estate provides more flexibility, lower interest rates, a higher loan amount, a longer payback term, and end-use viability. However, it’s vital to keep in mind that if the borrower falls behind on payments, ownership of the property will be given to the lender, making this sort of loan a far better choice than personal loans in the long run.

Busting Myths About Loans Against Property

A loan against property provides substantial funds that can be used to pay for manufacturing space, pay for your child’s education overseas, cover the cost of a family wedding, or be used to pay off debt. 

However, it’s critical to check that you are not falling for the numerous fallacies that surround this loan before you accept it. Here are 7 myths regarding loans against property together with the truth behind them so that you can make an informed decision.

1. Property Pledged Cannot be Used

It’s a common misconception that when taking out a loan against property, you can’t use the assets you pledge. That is untrue. Throughout the term of the loan, you are free to use the property that you have used to secure the funds. Only if you miss a loan payment will the financial institution acquire possession of the property. In this situation, the lender has the right to sell the property to recoup its investment.

2. Higher Interest Rates are Better than Collateral

If you have a good credit history, and are confident that you will not skip your EMIs, there are a few financial solutions that are better than a LAP. However, a loan secured by real estate offers you high-value money at rates that are far lower than those of conventional loans. It’s a financial product that allows you to borrow money by using your house or other property as collateral.

Keeping your home as collateral should never be an issue, provided you follow a set repayment schedule for the loan. It is, therefore, similar to any other loan. However, a Loan Against Property is a smart financial tool that supports you long-term and aids in maintaining stability when compared to other loans.

3. Take Loan Against Residential Property

This is not at all the case. A loan against property can be obtained by pledging either business or residential property. You can then use the loan amount to decrease lease rent or to purchase a business or residential property. There is a fourth choice that is open to you – Flexi Loan, which allows you to get the money that you can use however you see fit. With this option, you can take out the money as needed from the overall loan amount and only pay interest on what you use. 

Another option is to make interest-only payments and make the principal repayment at the end of the term. Throughout the tenor, you are free to withdraw, return, and redraw money as much as you like without having to submit a new loan application. 

4. High Rate of Interest

The interest rate for a loan secured by real estate is determined by several variables, including the lender you select, your credit score, the value, and the state of your property. Most of these loans are secured, meaning they have a reasonable interest rate that you can pay back over the long term. To guarantee that you receive a fair interest rate, keep a high credit score and put up a valuable piece of real estate.

5. High Income Bracket

Although your income does influence whether or not your loan application is approved because it affects your ability to repay the loan, it is not a requirement that you be in a high-income band to qualify for the loan. As long as you can convince the lender that you can repay the loan in full within the specified timeframe, you are eligible for this loan.

6. Loan Amount Equal to the Property’s Full Value

You will never receive a loan for the full amount of your pledged property. Most of the time, lenders lend between 75% to 90% of the value, while the precise amount depends on the item’s resale value and the lender’s policies. Therefore, determine the approximate value of the loan by estimating the value of the asset you intend to pledge.

7. Restricting on Utilizing the Loan Amount 

There are no limitations on how you can use a loan secured against a property. You are free to utilize the money however lawfully you see fit, whether for personal or business purposes. You can utilize it to install new technology, finance your child’s further education, satisfy working cash requirements, or grow your firm. In a nutshell, you are free to spend the money you like. Nevertheless, it is advised to exercise caution when using it.

Apply for a Loan Against Property with Protium

A loan against property can help you meet a variety of needs with a fair rate of interest. It helps you make money out of your possessions. However, before you sign, make sure you completely understand the terms, take processing and other fees into account, and read the fine print. 

You can also avail of a LAP with Protium – a finance company building powerful and transformative financing solutions. At Protium, we offer both secured and unsecured loans ranging from 10,000 to 5 Crore at affordable interest rates. To know more, give us a call at 8828827800.