A secured loan called a loan against property (LAP) enables you to borrow money by using your property as collateral. It might be a practical strategy to take care of your financial requirements, such paying for your child’s school, growing your business, or consolidating your debts. However, there are several widespread misconceptions and illusions regarding LAP that may prevent you from taking use of its advantages. We will dispel eight of these fallacies in this blog so you can make an educated choice
Myth 1: Only residential properties are eligible for an LAP.
Any sort of property, whether residential, commercial, industrial, or agricultural, is eligible for an LAP. However, depending on the kind and worth of the property, the eligibility requirements, loan sum, interest rate, and term could change. Compared to other types of properties, residential homes typically have higher loan-to-value (LTV) ratios and lower interest rates.
Myth 2: You must give the lender ownership of your property.
Factual statement: When you accept an LAP, you are not required to give the lender ownership of your property. To secure the loan, all you need to do is mortgage your property. This indicates that you are still in possession of your property and have the right to utilise it anyway you see fit. To avoid legal action and the sale of your property to recoup the debt, you must return the loan in accordance with the terms and circumstances set forth in the contract.
Myth 3: You are limited to using the loan proceeds for certain objectives.
You may utilise the borrowed amount for any morally and legally acceptable personal or professional purpose. LAP has no limitations on the final use of funds, unlike several other loan kinds, like mortgages and student loans. You can use it to pay for expenses like debt reduction, home improvement, wedding fees, travel, and a variety of other things.
Myth 4: LAP comes with a high interest rate.
Fact: A number of variables, like your credit score, income level, property value, LTV ratio, loan term, etc., affect the interest rate for LAP. LAP often offers interest rates that are competitive with other unsecured loan kinds, like credit cards and personal loans. This is so that the risk to the lender is lower because LAP is a secured loan. Additionally, you can bargain with the lender and take advantage of special offers or discounts based on your profile and qualifications.
Myth 5: There are numerous fees and costs associated with LAP.
Fact: Lenders have different fees and charges for LAP depending on the loan amount, loan term, kind of property, etc. Processing fees, appraisal fees, legal fees, stamp duty, foreclosure fees, and other regular fees and taxes are just a few. In contrast to other loan kinds, these fees and charges are typically small and cheap. Additionally, you can evaluate many lenders and select the one that provides the greatest deal with the fewest fees and penalties.
Myth 6: You have a limited amount of time to repay the loan.
Fact: Your loan size, interest rate, monthly payment, and other factors determine how long LAP will take to pay off. LAP typically provides more flexible repayment options and longer loan terms than other loan kinds. You can select a tenure based on your financial position and ability to make payments. Depending on the lender and the type of property, the maximum LAP tenure may be 15 years or longer. When picking the tenure, you should, however, also take into account the impact of interest costs and tax advantages.
Myth 7: It is impossible to prepay or foreclose on an LAP
Factual statement: There are no fees or penalties associated with prepaying or foreclosing your LAP at any point throughout the loan’s term. You can lessen your debt load and save money on interest fees by doing this. However, before you may prepay or foreclose your LAP, certain lenders may require a lock-in term or a certain amount of installments. Before submitting an application for a loan, you should inquire with your lender about their prepayment or foreclosure policies.
Myth 8: Having an LAP prevents you from taking out any new loans.
Factual statement: If you have enough income and the ability to repay the loan, you can obtain another loan while having an LAP. While taking out various loans, you should be mindful of your debt-to-income ratio and credit score. Too many loans might damage your credit and make you feel more stressed about money. As a result, you should only take out another loan if you absolutely need it and if you can afford it.
We hope that this blog post has dispelled some common misconceptions about LAP and inspired you to think about it as a potential solution for your financial requirements.