5 Factors You Should Know Before Availing a Property Loan at A Low-Interest Rate
A loan against property is a secured loan wherein the borrower will pledge their existing residential or commercial property to a lender as collateral to obtain a large sum of money. Because of the nature of a secured loan, this magnitude is accompanied by low-interest rates and a long-term tenor period. Because of the nature of a secured loan, lenders are less apprehensive when approving a loan against property because the ownership of the property remains with the lender for the duration of the tenor, thus minimising the risk factor for a lender.
There are multiple factors that a borrower needs to consider when applying for a loan against property. Here are five factors that will help you avail a loan against property at a low rate of interest:
- Applicant’s Eligibility Criteria:
The eligibility for loan against property differs from one lender to another, but the concept of acceptance or rejection of your loan application solely depends if the borrower is eligible. If you are up to par with all the eligibility criteria set in place by the lender, then you will not only be approved for a loan but will also speed up the process of disbursement of funds.
Here are some of the basic eligibility criteria:
- The applicant must be a resident of India
- The minimum age of the applicant should be over 25 years but this differs for each lender
- A regular source of minimum income
- Applicant must be either a salaried employee or a self-employed individual
2. Property Valuation:
Your property is the basis of your loan application, and it is important that you know your property’s valuation. A lender will conduct a thorough inspection of your property to establish the loan-to-value (LTV) ratio. If your residential property is located in an area that is highly desirable, is well maintained, and not very old, then you will receive a higher valuation with a lower interest rate because the property has a higher resale value and this will help you receive the loan quicker.
3. Comparing Lenders:
It is important that you visit multiple different lenders to establish the offers, payment terms, rate of interest, prepayment charges, offer loan charges, etc. that can help you establish your best possible choice for a loan against property. It is important to compare other charges as well, such as prepayment charges, stamp duty, etc., too, because this will increase the overall cost of your loan and making prepayments will also help you clear your loans faster.
4. No Tax Benefits:
A major drawback of a loan against property is that you will not be able to claim any tax benefits. This is why borrowers opt for education or home loans even though they have a higher interest rate but attract lucrative tax benefits. In the case of a loan against property, you will be required to pay taxes on the amount you are using to repay your loan.
5. Interest rate charged:
This is the most important aspect of a loan against property because you will be paying your loan against property for a span of 20 years and the interest amount payable is exorbitant. The interest rate depends on several factors such as your monthly income, loan amount, tenor period, credit score, outstanding loans, etc. Consult different lenders to get the best rate of interest because small differences in the interest rate may not seem like much but will hinder your reparability in the long run.
