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Loan against property allows you to pledge your property as collateral to borrow funds against it. Being a secured loan, the interest rates offered on these loans is usually lower than the rates offered on its unsecured alternatives such as personal loan. Also, with its tenure going up to 15-20 years, loan against property can be a good credit option for financing relatively big-ticket fund requirements. However, before availing loan against property, steer clear of these myths.
Myth 1: You cannot use the property you pledged as collateral.
Pledging your property for availing loan against property does not prohibit or restrict you from using it. As a property owner, you have the full possession of the pledged property as long as you do not default on the loan. In As loan against property is a secured loan, lenders have legal right to auction the pledged property, in this case a property, to recover the outstanding dues.
Myth 2: You should have a high credit score to avail the loan.
This is not true. Even with a low credit score, it is possible for anyone to avail a loan against your property. The loan is secured by an underlying property, which your lender can sell to recover the outstanding loan. This considerably reduces credit risk for lenders and also their reliance on using their applicants’ credit scores for determining their creditworthiness during the loan process. This is also the reason why qualifying for a loan against property could be easier for some individuals than qualifying for a personal loan.
Myth 3: There are restrictions on how the loan proceeds could be used.
Most consumers assume that there are restrictions on how they can use the proceeds of loan against property. However, that is not the case. Like most of its alternatives such as personal loan, top up home loan and gold loan, loan against property does not restrict usage of loan proceeds, except for illegal or speculative purposes. Borrowers can put the loan proceeds towards various purposes such as business expansion, child’s higher education, working capital needs, etc.
Myth 4: Loan against property has shorter repayment period.
Loan against property offers longer repayment period, which may extend up to 20 years. On the other hand, its loan alternatives such as personal loan, gold loan and top up home loan feature relatively shorter repayment periods. Such as the repayment period of a personal loan usually goes up to 5 years.
Myth 5: Lenders accept only residential property as collateral.
Residential property is not the only property type against which you can raise funds. Most banks and HFCs also accept commercial property as collateral. Some lenders also offer loan against industrial properties.