5 Common Myths of Loan Against Property

Loan against property is among the best options to get considerable funds that can help you finance different needs, such as higher education, marriage expenses, purchase a new property, or consolidate debt. But, most people avoid availing of such loans due to multiple myths associated with it.  

Five Common Myths of Loan Against Property: 

Let us go through the five common misconceptions surrounding the concept of property loan.  

Myth 1. It is better to take a high-interest loan than to give your property as collateral.  

Opting for a loan against property is a highly lucrative option that aims to provide sound financial health in the long-run. If you are consistent with your loan repayments and have a fixed repayment plan, then there is no harm in keeping your home or other property as collateral with the lender.  

Myth 2. You can only pledge your residential property for availing of the loan.  

This is entirely untrue. You can secure a loan against property by pledging both commercial and residential property as collateral with the lender. In fact, you can use the loan amount to purchase a new property or for lease rent discounting. Since there is no limit on the usage of the loan amount, you can also use it to finance your education and marriage. However, while pledging, make sure the property does not have any existing mortgage.  

Myth 3. You cannot use the property used as collateral.  

Most borrowers fear that they will not be able to use the commercial or residential property pledged with the lender. However, this is far from the truth. You can enjoy using your property with full freedom throughout the tenure of the loan. As long as you don’t default on your loan repayments and have a fixed plan for the loan, you can enjoy living in your house or work in your office, mortgaged to the lender. But, in case you fail to repay the loan on time, the lender has the right to sell your property to raise funds from it.  

Myth 4. You can avail of the loan amount equal to the full value of the property.  

Generally, when you borrow a LAP, the loan amount is determined after considering multiple factors. These factors include the resale value of the property, the lender’s policies, etc. No lender will provide you with the loan for the full value of the property. You are entitled to receive only 70%-90% of the property value as a loan. Thus, you must estimate the value of the property you need to pledge, and then arrive at an approximate loan value. You can use a loan against the property calculator to calculate the loan amount based on the property value, interest rates, and preferred loan tenure.  

Myth 5. Loan against property comes with high-interest rates.  

Due to increasing property rates and high loan amounts, most people believe that property loans can only be availed at high-interest rates. However, the interest rates depend on several factors, such as loan amount, duration of the loan, the value of the property, type of the property, the lender you choose, your credit score, etc. As a result, different lenders may provide different rates.

Must Read: What is Loan-to-Value Ratio and Why is it Important?

Since LAP is a secured loan, they have affordable interest rates that you can repay over a long tenure. You could even negotiate the rate of interest with the lender if your credit history is well-maintained. 

 Wrapping things up  

Before you decide to take a loan against property, it is essential to bust these five myths. There are numerous benefits of securing a LAP. So, make sure you make your decision based entirely on the facts and clearing all your misunderstandings. 

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