All About Factors That Affect Loan Against Property Interest Rates

Loan against property has gained popularity in recent times because it is a multipurpose secured loan that individuals can obtain from banks and lending institutions by pledging existing property, commercial or residential, as security.

However, there are few factors that greatly influence the loan against property interest rate offered to you by the lenders. To ensure you get the best deal, let’s take a look at these important factors.

• Loan Amount

The loan amount borrowed has a direct impact on the terms of the loan. Since LAP is a secured loan scheme, the loan comes at a lower interest rate as compared to other loans. Interest rate is dependent on the amount of money borrowed, and the tenor of the scheme applied for. Selection of the best loan plan is very crucial, therefore you should thoroughly research the market and select the plan which suits best for your requirements.

• Property type

The borrowers can ask up to 70% of the market value of the property, depending on property’s worth and lender’s policy. The evaluation process of the property kept as collateral is dependent on its location, its insurance status, age, condition, the type of property, its size and its performance as an asset. Having an insured and high-profit producing property can give you the edge in negotiating for a better loan deal from the lenders. You can get your property pre-evaluated from a third party site to better determine its market value and its performance.

• Eligibility Criteria

Every lender has a specific set of parameters upon which they judge the application of the candidates. Hence, go thoroughly through all the criteria set by them before applying for speedy approval and loan transfer. Usually the lenders require the applicant to be at least 25 years old, with a stable source of income.

Another parameter is a healthy credit score of 750. A lower score and lender may see the borrower as a high-risk borrower and charge them a higher interest rate.

• Repayment Tenor

Factoring in the repayment tenor into the process of research for the best loan plan is advised because it helps in financial planning and allows you to manage loan repayment efficiently, thus minimizing the risk of default.

Longer tenor helps in decreasing the rate of interest and having more affordable EMI plans. However, this can lead to higher total interest outgo in the long run. On the other hand, having a shorter tenor may result in an expensive EMI. You can make use of the EMI calculator available on official sites on various financial organization to find a suitable tenor based on the applicable EMIs by entering the loan amount and property loan interest rate offered to you.

• Terms and Conditions of the Loan Scheme

Since the loan agreement you sign on is legally binding, it is quite essential to go through each and every clause and sub-clause before applying. Make sure to check beforehand for any extra charges, for example, as processing, documentation, and prepayment that might be applied.

One of key benefits of LAP is tax exemption. However, this depends on the end-use of the funds. Borrowers must also know that both salaried professionals, and self-employed individuals, are eligible to apply for tax exemption under LAP.

However, you can claim tax advantages only on the interest paid, and not on the principal repaid for the loan against property.

Keeping in mind the above points, you are now equipped to make the right choices and borrow optimally.