A Loan Against Property is a secured funding product you can obtain by pledging a valuable asset as collateral. It could include any residential or commercial property, like a flat, house, apartment, or office space. You can borrow these loans for personal expenses, sudden medical needs, or business purposes. Moreover, the Loan Against Property rate of interest is pretty low due to its secured nature. Still, several factors may affect it. Below, you will take a look at these factors and learn a few tips to get a lower rate offer.
Types of Loan Against Property Interest Rates
Lending institutions offer the option of fixed and floating Loan Against Property rate of interest. The fixed interest rates remain the same for the entire repayment tenure, and market fluctuations do not affect them. Mostly, they are higher than floating rates, which fluctuate regularly with changing benchmark rates. The final selection between fixed and floating rates depends on market security and trends. A fixed interest rate offer certainty when there are chances of increasing repo rates. On the contrary, a floating rate helps save money when the repo rate decreases.
Factors Affecting Loan Against Property Rate of Interest
Loan providers do not offer the same interest rates for all LAP borrowers. Instead, they consider several factors while determining your interest rate. These are the most important ones:
- Age: Your age is a crucial factor that lenders use to determine your loan eligibility. Since young applicants have higher chances of repaying the loan on time, they get lower interest rates than older borrowers who might have no or fewer income sources.
- Income: While applying for a LAP, you must ensure having a steady and regular source of income to cover EMI payments. Lending institutions will check your income sources and demand income proof to determine your eligibility and offer you a reasonable interest rate. Your employment also matters, as a stable job ensures repayment and attracts lower interest rates.
- Financial Obligations: Even if you have a decent income, EMI payment may become challenging if you already have several financial obligations to fulfil each month. The debt-to-income ratio refers to the percentage of your monthly income in relation to the necessary expenses to make monthly. You may get the lowest Loan Against Property rate of interest if your DTI ratio is less than 50%.
- Credit History: A high credit rating indicates responsible financial habits. It always works in your favour by convincing lending institutions to offer you a higher loan amount at lower interest rates.
- Property Details: Loan Against Property NRI is also available for non-resident Indians. The collateral property’s age, location, and condition largely affect the interest rate on a loan against it. Residential properties have a higher value than commercial properties. Similarly, properties in pristine condition in a posh neighbourhood with various amenities fetch the lowest LAP interest rates.
Tips to Get the Lowest Interest Rate on a Loan Against Property
Now that you know what factors affect the Loan Against Property rate of interest, here are a few tips to improve your chances of getting the lowest rates:
- Maintain a decent credit score to showcase your creditworthiness and convince lenders to offer you a loan at lower interest rates.
- Finance companies consider your income an important factor in determining your repayment capability. Therefore, ensure that the EMI amount does not exceed 50% of your monthly earnings. Use an EMI calculator to choose a loan term with budget-friendly EMIs.
- Before applying for a loan, research and compare the interest rates from different loan providers and grab the offer with the lowest number.
- Avoid over-leveraging your asset to obtain the highest loan amount. Evaluate your expenses, borrow only what you need, and repay on time to get your property back. A bigger loan amount will also increase the EMI amount and interest cost, making the repayment more challenging for you.
- Prepare all the necessary documents to verify your property’s correct market value and borrow accordingly.
A Loan Against Property is an ideal financing solution for immediate expenses, as it allows you to unlock the value stuck in your assets. You can apply for a LAP to meet your cash flow needs, address medical emergencies, fund your education, wedding, vacation, etc. Due to its secured nature, the Loan Against Property rate of interest is relatively lower. Moreover, it is quite easy to obtain and allows you to use your property when in need.