Financial emergencies are unforeseen, and access to an affordable and substantial financial option is essential to meet them. In this regard, the loan against property is an affordable choice. It is a secured and affordable credit option that comes with no end-use restrictions as an added advantage.
Nonetheless, before applying for one, it is vital to review the interest rate on loan against property and find a suitable loan offer. At the same time, borrowers should also consider the factors that affect it and apply accordingly.
Factors that affect loan against property interest rate
Applicable interest rate on loan against property determines the total borrowing cost. Take a look at the following factors that impact its interest rate:
- Property type
The type of the mortgaged property affects the interest rate on loan against properties. Here, age, location, condition are taken into consideration. For example, residential property attracts a lower interest rate than commercial property. Likewise, property in a prime location, with amenities and good condition, carries a higher resale value. Therefore, it fetches a lower interest rate. At the same time, an old property in a less-desired location attracts a comparatively higher interest rate.
Loan against properties are long-term financial commitments, and the selection of repayment tenor plays a part in deciding its interest rate. If borrowers opt for a shorter repayment tenor, it will increase the monthly instalment amount. However, it will reduce the total interest outgo and close the loan quickly. Since it reduces the risk of default for lenders, they can offer competitive interest rates.
Whereas a longer tenor reverses this concept, and borrowers may have to bear higher interest rates. Hence, debtors must review their financial status and opt for a tenor that fits their repayment capacity.
For convenience, individuals can use a loan against property eligibility calculator to assess their monthly instalments. Enter the tenor, loan amount, and interest rate, and get the accurate EMI figure. This will also give a fair idea of an individual’s eligibility to get a particular loan amount.
- The financial status of an applicant
Financiers assess an applicant’s financial profile to determine his repayment capacity. For instance, a salaried individual enjoys a lower interest rate than a self-employed person because of a fixed income. However, professionals like a doctor or chartered accountant may also get a competitive interest rate.
The debt-to-income ratio is also an essential determinant that assesses the borrowing risk. Individuals with a lower debt-to-income ratio enjoy a competitive interest rate. Additionally, a person’s age and working experience also play a role here.
- Credit history
The credit history of an applicant also plays a part here. Since it represents a borrower’s creditworthiness, i.e. whether he/she can repay the loan without any interruptions, maintain a clean record devoid of any defaults can aid in securing a competitive interest rate against a loan against property.
- Balance transfer
Another pointer that can help to reduce the applicable interest rate on a LAP is a loan against property balance transfer. In this process, borrowers get a chance to shift their loan principal amount to another lender from their current one. Primarily, availing of a more competitive interest rate is the main reason for opting for this facility. Also, better terms of service and customer experience can be other factors for opting for this process.
Apart from these aforementioned factors, change in policy rates by the Reserve Bank of India can also affect the applicable interest rates on a loan against property.
Furthermore, borrowers planning to avail of a LAP can opt for a lender extending pre-approved offers to reduce the time required during loan application. These offers are available on a host of secured and unsecured financial products, and individuals can check their pre-approved offers online by submitting essential contact details.
Thus, keep these pointers in mind while availing of a loan against property. Additionally, compare the interest rate on loan against property and select a lender accordingly for a hassle-free borrowing experience.