In a loan against property, the interest rate is the major part that significantly influences the overall borrowing cost. A higher property loan interest rate can increase an individual’s monthly financial obligations as the EMI amount increases. So, they must be aware of the factors that impact this interest rate. It can help them stay aware of the steps to be taken to keep the borrowing rate low.
Factors Influencing Property Loan Interest Rates
Following are the major aspects that can determine the property loan interest rate of a loan against property:
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Borrower’s profile
Lending institutions carefully examine the financial profile of their loan applicants to understand how easily they can pay off their debts. Individuals with a stable income from salary can get a lower borrowing rate compared to self-employed individuals as the salaried individuals can pay off dues more comfortably.
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Age of the customers
Apart from this, financial institutions also check the age of their customers to fix an interest rate. Individuals nearing their retirement have to pay a higher property loan interest rate than those who have sufficient time ahead to pay off loan dues.
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Credit score
Although a loan against property is a secured loan, lenders confirm that the loan applicants have a positive track record of loan repayment. A credit score is a means by which they estimate the loan repayment history and creditworthiness of individuals.
Applicants with a good credit score can get LAP possession comfortably at a low-interest rate. This is because lenders deem them as low-risk borrowers who will not default on their EMI payments.
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Loan-to-value ratio
Loan-to-value (LTV) ratio determines how much credit a borrower can get against the value of their mortgaged property. The average LTV ratio across the lending institutions is 75%. Individuals who need to borrow lower than the LTV ratio amount can negotiate for a low interest rate. Since this reduces the overall risk factors of the financial institutions, they can keep their customers’ requests.
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Location of the property
Property location is also a significant determinant of the interest rate of a property loan interest rate. Properties with good connectivity have a higher demand and resale value. In case the debt becomes a non-performing asset (NPA), the financial institutions can easily liquidate it to raise their extended credit. That is why individuals can approach their lending institutions to determine an attractive interest rate.
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Loan tenor
In a higher loan tenor, the lending institutions get back their total lent capital after a prolonged time. Therefore, their risk also stays there for an extended period. This is why they can determine a higher loan against the property interest rate to compensate for this risk.
In this regard, individuals also need to know that a lower tenor makes the instalment amounts higher. So, they must know how to choose a suitable tenor in which their EMI is within their repaying capability.
Individuals can also opt for pre-approved offers to get a sizeable loan amount instantly at an attractive loan term. Major financial institutions offer these personalised offers on financial products, such as home loans and loans against property. It expedites the loan application process. Individuals just need to provide their credentials, such as names and contact details to check their pre-approved offers.
While applying for a loan against property, borrowers can keep these factors in mind to negotiate with their lending institutions effectively. Nevertheless, they also need to meet the eligibility criteria of their financial institutions to borrow money against the collateral.
Since borrowers stay engaged in loan obligations for a prolonged duration, they must be aware of all the factors they must consider while taking a loan against property. It will help them make informed financial decisions while taking the loan.
Furthermore, besides the interest rate of this loan against property, additional charges also significantly increase the borrowing cost. Therefore, they must know what charges are applicable in this loan against the property. By comparing several lenders against these fees, they can choose a financial institution providing loans at attractive terms.
In conclusion, individuals can get a lower property loan interest rate by ensuring the factors mentioned above. In this regard, they need to keep in mind that the final borrowing rate is at the discretion of the financial institutions.
