Common loan against property myths busted

Posted by Sarita Yadav on August 3rd, 2022

There are numerous misguided judgments or legends related with Loan Against Property (LAP) that should be busted. Peruse the blog to find out about LAP and the fantasies connected with it.

Put in basic words, a Loan Against Property (LAP) or a home loan credit is a gotten credit that you can benefit against your private or business property as guarantee. When contrasted with different sorts of credits like an individual advance or a gold advance or a business credit, LAP is viewed as the most ideal decision to satisfy all your monetary necessities because of the low-loan fee and adaptable end-use.

1. Only Residential Real Estate May Be Pledged

Many of us believe that the only type of collateral we may use to apply for LAP is a residential property. This is untrue, though, as you may also use a commercial property—even a factory or a warehouse—as collateral when applying for a loan against property. If you want to receive the loan money promptly and without any problem, all you need to do is maintain all of your paperwork  and present genuine proof.

2. The Loan Amount May Be Borrowed Up to the Full Value of the Property

The exact percentage of the value of the property that a lender may finance with a loan is known as the Loan to Value (LTV) ratio. Because of this, many purchasers who apply for a Loan against Property (LAP) think they may get one approved for 100% of the property's market value. 

The maximum loan amount a borrower may obtain, however, is determined by how much the property is worth; typically, the lender will authorise a loan for up to 70 to 80 percent of the property's value. Numerous other aspects, such as the property's age, regional stability, and infrastructure, are also taken into account while appraising the property. After the review procedure is over, it might take 7 to 21 days to disburse the loan.

3. To be eligible for LAP, you must be in a high income bracket.

Yes, income is important when applying for a Loan Against Property, but you can still do so even if your income is moderate. Various lenders have different minimum income requirements for salaried and self-employed borrowers.

As a result, even if your net income is minimal, you might strive to win the lender's trust by keeping your obligations low and making all of your existing EMI payments on time. It doesn't matter if you belong to the high income or moderate income category as long as you can persuade the lender that you can repay the loan without defaulting.

4. The LAP Interest Rate is High

Once more, it is a frequent misconception that LAP applicants must pay hefty interest rates. The interest rate for an LAP is primarily determined by the borrower's credit score, income, and capacity for repayment because the LAP is a secured loan and is backed by collateral (the borrower's business or residential property).

If you have a good credit score of 750 or more, the lender will be able to trust you and give you an LAP at a lower interest rate since it will be demonstrated that you have paid your previous loans' EMIs and credit card EMIs on time without any default.

5. The approval procedure is cumbersome.

Yes, if you compare the LAP procedure to getting a personal loan, it can take longer since there is more paperwork and collateral involved, but it is not a difficult or unpleasant process. To speed up the process, the borrower must make sure he fits all eligibility requirements before applying for LAP and provide all valid KYC, income, and property documentation. Additionally, a lot of lenders enable online Loan against Property applications, making it simpler for consumers to submit their loan applications.

6. The Lender Acquires Possession of the Collateral

The complete ownership of the collateral remains yours as long as you make your EMI payments on time and don't let your payments fall behind. Your original property paperwork must be provided to the lender when you apply for LAP, but you receive them back once the full and final settlement has been made.

7. The tenure of LAP is shorter

LAP has a long loan term in Shubham Housing Finance which is of 10 years because the loan amount is unto i.e, Rs.15,00,000 making it easy for you to pay the EMIs.

8. LAP Is Not a Secure Choice

There is no harm in pledging your collateral to receive LAP if you are certain on your credit score and repaying capacity. LAP has many advantages over other loan choices, including a reduced interest rate, a longer duration, and a top-up credit capacity (only if you have the ability to repay the particular loan amount). There may be further fallacies about loans against property in addition to the ones mentioned above. However, you shouldn't trust such falsehoods and should check with the lender about any uncertainties you may have.

A loan against property can help you meet a variety of demands at 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 may apply for a loan against property from Shubham Housing Finance with less paperwork and at an affordable interest rate.