When it comes to funding major expenses—be it expanding your business, covering medical emergencies, or financing a child’s education—a Loan Against Property (LAP) can be a smart and reliable option. Yet, despite its popularity, many borrowers hesitate due to common myths surrounding this type of loan.
In this article, we debunk the biggest myths and highlight the facts you need to know about Loan Against Property so you can make an informed financial decision.
What is a Loan Against Property (LAP)?
A Loan Against Property is a secured loan where you pledge your residential, commercial, or industrial property as collateral. In return, lenders provide a loan amount based on the market value of the property—often up to 60-70%.
It’s one of the most affordable forms of borrowing because it is backed by collateral, and it can be used for both personal and business needs.
Myth 1: Loan Against Property is Only for Business Purposes
Fact: LAP Can Be Used for Multiple Needs
While many businesses use LAP to fund expansion, working capital, or new projects, it’s not restricted to commercial use. You can take a loan against property for various personal reasons too:
- Higher education
- Medical emergencies
- Home renovation
- Debt consolidation
- Wedding expenses
The end use is usually flexible, as long as it’s not for speculative or illegal activities.
Myth 2: Only Commercial Properties Can Be Used for LAP
Fact: Residential and Even Vacant Plots Can Be Pledged
A common misconception is that only income-generating properties like shops or offices are eligible. In reality, lenders accept a wide range of properties as collateral:
- Self-occupied or rented residential homes
- Commercial establishments
- Industrial units
- Sometimes even vacant land (depending on the lender’s policy)
The key is that the property must have a clear title and legal ownership.
Myth 3: The Loan Process is Very Lengthy and Complicated
Fact: LAP Processing is Fast with the Right Documents
While it’s true that LAP involves property verification and legal checks, most financial institutions have streamlined their processes. If your documents are in order, approvals can happen within 7–10 working days.
- Having the following ready can speed things up:
- Property documents
- Identity and address proof
- Income documents (salary slips, bank statements, ITR)
- Business proof (for self-employed)
Many NBFCs and digital lenders now offer quick LAP processing with minimal hassle.
Myth 4: LAP Has Higher Interest Rates Than Other Loans
Fact: Loan Against Property is One of the Cheapest Borrowing Options
Because it’s a secured loan, an LAP typically comes with lower interest rates compared to unsecured loans like personal loans or credit cards. In India, LAP interest rates generally range from 8% to 11%, depending on the borrower’s profile and the lender.
It’s especially beneficial for those looking for long-term, high-ticket loans at affordable EMIs.
Myth 5: You Will Lose Your Property If You Miss a Single EMI
Fact: Lenders Offer Support and Grace Periods
While it’s true that your property is collateral, lenders don’t immediately seize assets over a missed payment. Most institutions offer grace periods, restructuring options, and reminders before taking any legal action.
Repossession is usually the last resort and happens only after consistent non-payment and multiple warnings. If you’re struggling with EMIs, it’s better to communicate with your lender and work out a repayment plan.
Myth 6: You Can Only Get a LAP if You Have a High Income
Fact: LAP Eligibility Depends on Multiple Factors
Lenders do evaluate income, but it’s not the only factor. They also consider:
- Property value and type
- Loan-to-value (LTV) ratio
- Applicant’s age and credit score
- Occupation (salaried or self-employed)
- Overall financial profile
Even those with moderate income can qualify for a loan against property, especially if the pledged asset has good market value.
Myth 7: Prepayment and Foreclosure Come with Heavy Penalties
Fact: Most LAPs Come with Flexible Repayment Options
For individual borrowers with floating interest rate LAPs, there are no prepayment or foreclosure charges, as per RBI guidelines. Even for fixed-rate loans, many lenders now offer minimal or zero charges, especially from NBFCs.
This gives borrowers the freedom to close their loan early and save on interest.
Final Thoughts
A loan against property is one of the most versatile and cost-effective financing options available today. But due to outdated information or half-truths, many people hesitate to explore it. By understanding the facts behind the myths, you can make a smarter choice and use your property to unlock financial freedom—without selling it.
Whether you’re looking to grow your business, cover a life event, or consolidate debt, LAP offers you the flexibility and funding you need—with your property working for you, not against you.
