Loan against property is the most preferred way to arrange finances for many when they have property to pledge. These loans are similar to personal loans in terms of features. The borrower of the loan can use the loan amount for any desired purpose but will be liable to repay the loan over fixed tenure of the loan. Though these loans are not offered for a specific purpose, the interest rates on these loans are comparatively low because the lender is a lower risk while issuing the loan when compared to any other loan available in the market. However, there are few misconceptions that are pushing the loan against property backwards.
Only residential property can be pledged
As the name of the loan goes by, anyone who is looking for the loan might have understood that these loans are offered by the lending institutions by pledging the property. The misconception here is that people believe that only residential properties can be pledged to get the loan. In the reality, both the commercial and residential properties can serve as collateral to get these loans. You will be eligible to get the loan even if the residential or commercial property is self- occupied. The best part of these loans is you can enjoy financial assistance against the property without losing the possession of the property.
Quantum of the loan depends on purchase value
The amount of loan you get depends on the current value of the property rather than the price of the property. Whether you approach bank or NBFCs requesting the loan against property, your property is evaluated by bank owned evaluator before deciding the quantum of loan that can be sanctioned. The evaluator takes key factors into account like circle rate, the age of the property and current condition of the property. If there is appreciation in the value of the property, You will be able to get the good quantum of loan. On the contrary, if it is depreciated, the quantum of loan will be decreased ( which will not happen in most of the cases ). You should not expect to get the loan for the full value of the property. Different lenders have different margins on the loan amount sanctioned. If the lender has a margin of 40%, You will get a loan amount for 60% of the property value.
Bank takes possession of the property
Against the misconceptions of the borrower that banks takes the possession of the property to avail loan against property. The borrower continues to hold the possession of the property while he continues to repay the loan. Whether the property is self-occupied or rented, borrower continues to enjoy the benefits till he stays prompt in the repayment of the loan. The banks hold right to take the possession of the property only if the borrower fails to repay the loan.