Sudden expenses can come up anytime, and if your savings are not enough to fall back on, one option is to apply for a loan against property. You can get this loan by pledging residential or commercial property as collateral with the lender. Now, since this is a secured loan, the interest rate is lower as compared to an unsecured loan.
This is a great advantage for most borrowers who look at the interest rate before taking loans. This is because the loan against property interest rate can have a significant impact on the loan’s monthly instalments. Now, a lender sets the interest rate after considering numerous factors. It is important to be aware of these to get the most affordable interest rate for your loan.
So, take a look at factors that affect the loan against property interest rate:
Profile of the borrower
A lender will evaluate a borrower’s occupation, age, city, monthly income, etc. while deciding theloan against property interest rate. Lenders usually offer low interest rates to salaried employees since they have a regular record of income. Self-employed professionals who have irregular incomes might get offered a higher interest rate. Those who are nearing retirement may also get a high interest rate, whereas those who have recently started working and have a long career ahead of them have a better chance of getting good deals.
Repayment tenure of the loan
The repayment tenure of the loan against property will also have an impact on the interest rate of the loan. The maximum tenure that lenders provide for a loan against property is 15 years. Now, by opting for a short tenure to clear the loan sooner and cutting down the number of monthly instalments, you are also saving on the interest. To make up for this, it is possible for lenders to charge a slightly higher interest rate as compared to a long tenure.
Any lender will check a borrower’s credit score before approving their loan application. Having a good credit score not just helps boost chances of a loan approval, it also helps in getting a better interest rate. Since lenders prefer borrowers with a good credit history, they offer good loan deals with low interest rates.
Type of property
Lenders offer different interest rates based on the type of property that you are pledging as collateral. Interest rates for commercial properties differ from those rates offered for residential properties. Not just this, even the age and location of the property can have an impact on the interest rate being offered.
Now that you know lenders set the interest rate, make sure to keep these factors in mind before speaking to a lender. Make use of a loan against property EMI calculator to check whether the interest being offered is affordable or not. Also, it is advisable to inquire about the loan against property documents that the lender requires in advance to enjoy an uncomplicated procedure.