Loan Against Property (LAP) is surrounded by a lot of popular misconceptions that need to be dispelled. To learn more about LAP and the myths surrounding it, read the blog.
Simply put, a loan against property (LAP) or mortgage loan is a secured loan you can obtain using your home or business property as collateral. LAP is said to be the finest option to meet all of your financial demands because to the low interest rate and flexible end-use when compared to other sorts of loans like a personal loan, a gold loan, or a company loan.
It is quite easy to apply for LAP. All you have to do is use your real estate, whether residential or commercial, as collateral with a bank or NBFC in return for a sizable sum of money, and repay the loan with fixed-term EMIs. A loan against property, as opposed to an education loan or a home loan, can be used to meet a variety of financial demands, including wedding costs, higher education, home or business expansion, etc.
Ten Commonly Assumed Myths about Loans Against Property (LAP)
Despite being a gift for many, loans against property are often misunderstood. To learn about the LAP misconceptions we have disproved, read on.
- You Are Not Allowed to Use the Property You Have Pledged
The idea that you cannot live in or use the property you have pledged as collateral to obtain a loan is one of the most pervasive misunderstandings about LAP. This myth is untrue. There is no problem with this as long as you make your EMI payments on time and do not go into default on your repayment. So, to find out what your predicted EMIs would be if you took out a certain loan amount, utilise a Loan Against Property EMI Calculator online before you apply for LAP. By doing so, you can determine if you can afford the EMIs even before you apply for a house loan.
Additionally, if you don't pay your EMIs on time, the lender has the authority to sell your home to recoup the unpaid loan balance. Therefore, be careful to pay the EMIs on time as missed payments also have a bad effect on your credit score. Automating EMIs is advised by giving the bank standing instructions.
- The End Use of the Funds is Limited
Another prevalent misconception about LAP is that there are limitations on how the money may be used in the end. A Loan Against Property can be used to meet a variety of financial demands, with the exception of speculative or unlawful ones, just like other loans including gold loans, personal loans, and top-up house loans (such as for medical expenditures, wedding costs, higher education, home or company development, etc.).
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
