Considering a loan against property for your financial needs? Are you unsure about the misconceptions surrounding it? Many individuals approach loans against property with apprehension due to prevailing myths. However, armed with accurate information, you can confidently make informed decisions regarding your financial future. A loan against property is a secured loan option available for both residential and commercial properties, catering to various purposes like medical expenses, higher education, weddings, and more. This article aims to debunk the eight most common myths associated with loans against property.
Myth 1: The property pledged cannot be used
The most common misconception about taking a loan against property is that the pledged property cannot be utilized. However, this belief is untrue. As long as the borrower meets their payment obligations and avoids defaulting, they have the freedom to utilize the property. In case of a default, the lender or bank has the right to take action and recover the outstanding amount by selling the property.
Myth 2: Restricted end-use of funds
One of the most common misconceptions surrounding a loan against property is that it can only be used for purchasing property or homes. However, this belief doesn’t align with reality. In fact, there are absolutely no restrictions on how the funds borrowed through a loan against property can be utilized. Borrowers have the freedom to meet various financial needs, including but not limited to higher education expenses, business expansion costs, wedding expenditures, and healthcare bills.
Myth 3: The loan against property is restricted to a residential property
Many individuals commonly assume that loan eligibility solely pertains to residential properties or homes. However, this belief is not accurate. In fact, one can leverage a commercial property, factory, or warehouse as collateral to secure a loan against their property. This option creates new opportunities for entrepreneurs and professionals seeking alternative means to finance their ambitions.
Myth 4: One can get 100% of the property’s value sanctioned in a loan against property
This is a common misconception that many people have about the loan against property. Borrowers cannot get 100% of the property’s value sanctioned as the maximum amount that can be borrowed is up to 70 to 80% of the property’s valuation as approved by the lender or bank. Factors such as infrastructure, geographical stability, and other market trends are taken into consideration while deciding on the loan amount.
Myth 5: One must belong to a high-income bracket to avail of a loan against property
This is a common misconception that many people have about the loan against property. Borrowers cannot get 100% of the property’s value sanctioned as the maximum amount that can be borrowed is up to 70 to 80% of the property’s valuation as approved by the lender or bank. Factors such as infrastructure, geographical stability, and other market trends are taken into consideration while deciding on the loan amount.
Myth 6: The collateral’s possession is taken by the lender
There is a common misconception surrounding loans against property that the lender assumes full possession of the property or collateral. However, this is not true. As long as borrowers make timely EMI payments and avoid defaults, they retain complete ownership of the collateral. To ensure security, original property documents must be submitted to the lender but are promptly returned once all payments have been cleared.
Myth 7: Loan Against Property has a short tenure
Loan against property involves borrowing a significant amount compared to other types of credit. As a result, it typically has a longer repayment tenure, which can extend up to 20 years depending on the borrower’s capacity to repay.
Myth 8: Loan Against Property is risky
The risk associated with a loan against property depends on the borrower. Before opting for any loan, it is crucial to understand one’s repayment capability. If a person can repay the loan, they can pledge the collateral without worry. A loan against property offers minimal risks and various benefits, including lower interest rates. This makes it a viable financing option for individuals with multiple financial goals.
Myth 9: Cannot use the property during the loan tenure
Contrary to a common misconception, pledging a property for a loan does not restrict the borrower from using and occupying it. The borrower retains full access as long as regular repayments are made. Only if the borrower defaults on the loan will the financial institution gain ownership of the property, enabling them to sell it in order to recover the outstanding amount.
Myth 10 : Loan amount is equivalent to the property’s total value
The myth surrounding loans against property claims that the borrower can obtain a loan equal to the total value of their pledged property. However, in reality, lenders typically offer loans ranging from 75% to 90% of the property’s value based on factors such as its resale value and the lender’s policies. To make informed decisions, borrowers need to estimate their property’s worth and have a clear understanding of the approximate loan amount they can expect according to the lender’s criteria.
Myth 11 : Loan against property is limited to residential or commercial property only
Many individuals hold the misconception that loans against property only apply to residential or commercial properties. However, this belief is inaccurate. Borrowers have the opportunity to offer both residential and commercial properties as collateral for a loan against property. Moreover, specific lenders offer the flexibility to utilize the loan amount for various purposes such as acquiring commercial or residential properties, lease rent discounting, or even as a Flexi Loan. With a Flexi Loan, one can withdraw and repay funds multiple times throughout the tenor.
These commonly believed myths surrounding loans against property might have deterred individuals from considering this beneficial financing option. However, the truth is quite different. Loans against property are secure loans that offer attractive interest rates and a wide array of benefits. It is important to gain a thorough understanding of these loans before applying for them, allowing you to effectively utilize them towards your financial goals.
