8 Popular Misconceptions About Loans Against Property

A financial emergency can arise at any time and when such an emergency arises, your only option is to take a loan. A loan against property is one of the safest borrowing options available to borrowers these days. Mortgage loans come with a long repayment period. Further, due to them being secured in nature, mortgage loans can also be availed of at low-interest rates. 

However, despite being the best borrowing option for managing big-ticket expenses, loan against property is surrounded by several myths. These myths prevent many from taking advantage of this financing option. In this article, we bust several popular misconceptions about loans against property to help potential borrowers avail of the benefits of this financial tool.

Several Popular Misconceptions About Loans Against Property

• One Cannot Avail of a Substantial Loan Amount Against Property

Under a loan against property in India, one can avail of a substantial loan amount. In fact, some lenders, like most lenders in the market provide loans up to Rs.5 Crores, or even higher, basis eligibility. However, borrowers must know that the loan amount they are eligible for depends on the market value of the pledged property. Lenders generally evaluate the value of the property before sanctioning the loan. By pledging a high-value property, a high loan amount can be secured. Thus, the myth that only a small loan amount can be availed of through a loan against property is certainly misleading and has no base.

• Loan Against Property is Available for Only a Short Tenor 

The repayment tenor for a loan against property can go up to 20 years. Most lenders extend the facility of long repayment tenors keeping in mind the convenience of borrowers. A longer repayment tenor gives borrowers the opportunity to easily pay off the loan in smaller instalments. So, this is just a hearsay that borrowers cannot avail of a loan against property for long periods.

• Getting Approved for a Loan Against Property is Difficult

This is another myth about loans against property. Borrowers meeting the basic loan eligibility criteria can secure the loan easily. Because a loan against property is a secured loan, lenders generally show leniency while approving the loan application. The pledged property and its ownership, however, are verified by the lender before disbursing the loan amount.

• Loan Against Property Attracts High-Interest Rates 

Contrary to the misconception that a loan against property attracts high-interest rates, the reality is that you can avail of a loan against property at a very competitive interest rate. Lenders charge a high-interest rate to keep the risk on the loan under control. In the case of a loan against property, borrowers must mandatorily pledge a property. This reduces the risk for the lender. Further, if the credit history of the loan applicant is good, it is even more probable that a lower interest rate on loan against property can be secured.

• Commercial Property Does Not Qualify for a Loan Against Property 

This is another popular misconception about loans against property. The truth is that lenders happily approve a loan against commercial property. 

• Loan Amount Comes with Usage Restrictions 

The truth about loans against property is that it gives borrowers the freedom to use the loan money as they deem fit. Thus, money generated by availing of a loan against property can be used for personal as well as for several other purposes. Lenders do not put any usage restrictions on the amount received. A borrower can use the money to buy a house or another car, pay for a family wedding or a child’s education, or for meeting emergency financial requirements.

• Pledging a Property for a Loan is Not a Prudent Financial Decision 

This is a misconception among many that one should not mortgage a property to apply for a mortgage loan online. This is wrong – in fact, a loan against property gives you the option of putting the property you own to optimum use. It is also one of the easiest ways to generate funds, even for big-ticket expenses. As a borrower, one should pay the EMIs on time and plan the repayment intelligently. If one borrows only what one can repay, availing of a loan against property can prove to be a smart financial decision.

• Usage Rights of the Property go to the Lender 

Not only does the ownership of the property, but the usage rights also remain with the property owner. During the duration of the loan, the property owner is free to use the property for personal purposes. Also, the property can even be rented out to earn regular income.

Read Also: 3 Proven Ways to Reduce Your Mortgage Loan Rate of Interest

Final Words

Popular myths about loan against property discussed above stop many from availing of this loan. However, a loan against property is as safe as any other type of loan. Gathering all the information through research goes a long way in avoiding popular misconceptions. Through this article, we have attempted to bust the myths surrounding loans against property. Now, after evaluating the pros and cons, you can make a rational decision as to whether or not is a loan against property the right choice for you.