Common Myths Around LAP

Common Myths Around LAP


LAP or loan against property comes under the category of secured loans. These loans are usually issued against property or residence, which acts as collateral security. The residential property is kept as collateral with the lending banks or institutions until the complete loan along with interest is repaid.

The loan against property is usually issued for meeting aims like weddings, medical crises, educational and academic purposes, or business purposes.

People usually prefer LAP due to their unique benefits which help its borrowers to fulfil their expenses with comfort.

There are many myths about the LAP which would be busted here.

Myth 1: The loan amount which is borrowed can be equal to the value of the entire property.

No bank or funding institution ever claims to issue a loan against property which amounts equal to the total value of the property. The individual is entitled to receive a loan amount as high as 60 to 80 per cent of the total value of the property used as security.

Lending institutions do proper analysis and evaluation of the property to know it’s worth and based on which the loan is provided.

Myth 2: Loans can be issued only against certain residential properties.

It is one of the biggest myths that most individuals believe who apply for a loan against property.

In fact, this is one of the most beneficial parts of the loan against property or LAP. Through LAP, individuals can avail of loans on any of the fully furnished commercial or residential properties. The only condition that plies that the individual has to ensure is that the property is clean and free of litigation.

Also, the residential property to be used as collateral security should not by default be mortgaged.

Myth 3: The property which is given as collateral to the banks can not be used further.

This is a total myth. The property which is given to the lending firms as collateral can be used to reside in all forms. There are no such restrictions. The individual can continue to stay and run any commercial shop or business as he or she might be doing previously.

There is an exception. Even if, after the given tenure, the individual is unable to repay the loan amount with interest, in that case, the banks or lending firms could sell the property to meet the loan amount. 

Then, the individual would have no claim on the property.

Myth 4: Loans with a higher rate of interest are preferable when compared to giving a residential property as collateral.

Many people might consider taking loans with a higher rate of interest than Loans against the property because of the risk of putting their property at stake. 

But, if working according to a plan keeping into account various important factors like income and monthly instalment, then a better option in all means is LAP, and keeping the home as collateral should not be a problem.

Loan against property was introduced to provide aid to the people who owned property but due to reasons couldn’t afford the high-interest rate plied on the loans.

Myth 5: High-interest rate of LAP:

Again, most people do not prefer loans against the property because they believe that the interest rate applied to such loans is very high. Whereas the reality is, it is quite affordable to repay the LAP along with the interest when compared to other forms of loans.

Though, such loans do have a risk factor involved. So it is important to evaluate and go through all terms and conditions and plan everything before going for such loans!