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Tata Capital > Blog > Loan on Property > 6 Myths About Loan Against Property Busted

Loan on Property

6 Myths About Loan Against Property Busted

6 Myths About Loan Against Property Busted

A person who owns a property (residential or commercial) can easily obtain a loan against property (LAP). A loan against property procedure is quite simple. A borrower has to keep their loan against property documents as collateral with a bank or NBFC. The bank will provide a loan approval document after determining a borrower’s creditworthiness. The borrower must agree to the loan against the property terms and conditions. In return, they get a good amount of funds that can be utilised to cover various expenses such as children’s education, business expansion, medical emergencies, and so on. Borrowers, however, must ensure that they adhere to the loan against property repayment schedule and pay their EMIs regularly.

Loans against property documents are easy to obtain. However, a borrower has to ensure they do not fall prey to the many myths associated with LAP. If they are serious about investing in a LAP, they should base their decision solely on factual information. This article will help explore six common myths associated with LAP.

6 common loan against property myths busted

Myth #1 – Only residential property can be pledged against LAP

Many borrowers who own commercial property do not apply for a loan against property. That's because they think they can only pledge residential property against LAP. Contrary to popular belief, most lenders will accept both residential and commercial property as collateral against LAP. In order to apply for a loan against property, the borrower simply needs to have the documents required for a LAP loan and submit them according to the loan against property terms and conditions. A borrower can thus pledge against any commercial property.

Myth #2 – A borrower cannot use a pledged property

Another common myth surrounding a LAP is that a borrower cannot use a pledged property. However, this is false. Pledging a property as part of the loan against the property procedure does not enforce any limit on the said property’s usage. The pledged property would still be in possession of its owner as long as the owner repays the EMI as per the loan against property repayment schedule. So, only when the owner of the pledged property defaults on EMIs, the concerned lender will get the ownership of the said property. Also, LAP is a secured loan, so the lenders can recover any outstanding dues by selling the property.

Myth #3 – A loan amounting to the full value of the property can be borrowed

No, that's not the case. Though a borrower has submitted all the necessary documents required for a LAP loan, they still cannot get the amount of loan equivalent to the total value of the pledged property’s market value. Many lenders provide LAP loans up to 70% - 90% depending on the pledged property’s resale value and the policies of the lender. As such, a borrower has to consider this aspect while availing LAP loan.

Myth #4 – LAP has a higher interest rate

Another common myth is that a borrower has to pay a higher interest rate on LAP. LAP is a secured loan backed by the property as collateral. Therefore, the interest rate on LAP depends on many aspects like the borrower’s credit score, property value and condition, lender selected, repayment capability, and so on.

Myth #5 – Only a high-income bracket borrower can apply for LAP

A borrower’s income is a crucial criterion when applying for LAP, as the lender has to be assured of timely loan repayments. However, this does not mean that a borrower has to be in a high-income bracket to avail of LAP. It is still possible for people with moderate incomes to apply for LAP. In order to qualify for a LAP loan, applicants must submit the necessary documents required for LAP loan to prove their income eligibility.

Myth #6 – Getting a loan against collateral is not a safe option

LAPs are also frequently misconstrued as being unsafe. Loans backed by the property are often not treated as secured mortgage loans, as the need for collateral makes some borrowers hesitant to avail of LAP. In reality, however, a LAP is a secured loan secured by the pledged asset. Additionally, a LAP is cheaper compared to gold or a business loan. LAP can be a safe and sound option when a borrower has a steady income and good credit score, and if they repay the loan on time. Also, a borrower gets considerable funds through LAP based on the property pledged.

Wrapping Up!

Before availing of LAP, borrowers should get the LAP associated myths busted. This will help them with the loan against property procedure in a hassle-free manner. For more details on loans against property, visit the seasoned experts at Tata Capital or log in to Tata Capital’s official website.

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