Common myths about loan against property

Introduction

If you want to borrow money on a secured loan, you need to pledge an asset against the loan. This pledged asset is called collateral.  Collateral can be in the form of any asset. In a loan against property, you can use your property to act as collateral for the loan. You can hand over the documents of the property to the lender to receive the loan. If you stop making the payments, the lender can sell the asset. You can use either residential or commercial property as collateral. The amount lent to you will depend on whether the property is residential or commercial. You can use the loan for either personal or business needs. You can make equated monthly installments (EMI) to re-pay the borrower. At first, the EMIs consist of the interest amount, later the principal.

Myths about Loan Against Property

· You cannot use or live in the property that you have pledged

The common myth is that you cannot use/live in a property you have pledged to avail yourself of a loan. This myth holds false as long as you haven’t defaulted on your payments. To avoid such situations, it is always better to pay off your EMIs. On-time payments can ensure that you can use your pledged property.

· There are restrictions in the usage of the money

Another myth about loans against property is that there are restrictions on the usage of money. There are no restrictions. You can use the money either for personal use or for business use.

· The property that is pledged should only be residential

You might think you can only use the residential property as collateral. This is a myth. You can pledge either residential or commercial property to receive a loan. You can even pledge a factory or a warehouse to avail funds. Your documents and other paperwork about the property need to be up-to-date. A lender can reject your loan application if the property details are not updated.

· High rates of interest

It is a myth that you have to pay high-interest rates on loans against property. Your credit score, credit history, income decide the interest rate on your loans. If you use collateral as security, your credit risk may reduce. You may have the advantage of paying a lesser rate of interest. To get the best interest rates, you should have a high credit score with less risk of default.

Additional Read: Questions About Loan Against Property Answered

· Only influential high-income people can avail of this loan:

People believe that only high net income individuals can borrow loans against property. This is a myth. You only need to earn enough to show repayment capabilities. Even if your income is not high, you can gain the lender’s confidence with your credit score. Even if your income is not high, you can gain the lender’s confidence with your credit score

Additional Read: Different Types Of Business Loans

Conclusion:

Even though a loan against property has several benefits, you have to be aware of the fine print. You should know and understand all the charges and clauses. As it is a long-term loan, you cannot have assumptions about the terms and conditions of the loan.

Disclaimer:

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. Please note, loans related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing.