Loan against property, also known as LAP is a type of secure mortgage loan. Many leading banks and NBFCs in India offer loan against property to their customers to fulfill their personal as well as professional financial needs. Loan against property is a perfect alternative to personal loan. It has lower interest rate, longer tenure and higher amounts. Though this type of loan is very popular amongst masses, many have different perceptions about the same. That’s why we decided to clear these three major misconceptions about loan against property…
Misconception 1: Only residential property can be kept as collateral
Banks and NBFCs in India offer a loan against property for residential as well as commercial property. The residential properties include flats, apartments, bungalow, row-house, residential building etc. Whereas commercial property includes shops, office spaces, commercial complex etc. One can easily take a loan against property by mortgaging their residential as well as commercial properties.
Misconception 2: The loan amount is approved as per the price of the property was bought
As the name suggests, the loan against property is given against the property which is being kept as collateral. The amount granted for loan by the lender is as per the current value of the property not the buying cost of the property. For example, Ramesh bought a 2BHK apartment for Rs. 50 lakh in 2001. Today the apartment’s value is Rs. 1.5 crores. Ramesh wants to take a loan against his apartment to fund his daughter’s wedding. He requires Rs.75 lakh as loan amount. Here considering his credit score, legality of the property and other details, the lender will grant him a loan worth Rs. 75 lakh as the current value of the property is more than the required loan amount.
Misconception 3: The loan lender takes possession of your collateral property until the loan is paid off
When you keep your property as mortgage with the bank/NBFC, you have to submit the original documents of the property. The documents are kept with the loan lender until the loan is paid off in full within the given tenure. Meanwhile, the loan borrower can use the mortgaged property. There are no restrictions on the same.
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