The year 2020 has been a testament to the importance of quick access to external financing. Loans against property, in particular, have been a convenient funding avenue to meet exigencies such as medical emergencies, setting up new businesses, and purchasing residential properties.
Affordable loan against property interest rates is instrumental in increasing the popularity of such financial products among prospective borrowers. Presently, the minimum rate prevalent in the market is around 7%.
A loan against property allows borrowers to leverage the equity lying with their immovable assets to access necessary funds and meet an array of requirements. They also retain the rights to the properties’ ownership throughout. However, before applying for this credit instrument, borrowers should take note of the deciding factors that can influence their overall debt, particularly the tenor and interest rate.
The 2 primary deciding factors of a loan against property
Here are some pointers that can affect the LAP repayment of an applicant:
Owing to the secured nature of lending, loans against property interest rates are lower than their unsecured counterparts. The rates may vary from one lender to the other, and borrowers must compare the available options to settle for the lowest rate available.
For example, if you have secured a loan against a property (LAP) of Rs.50 lakh at an 8% interest rate for 20 years, your EMI will be about Rs.41,000, But if you get this loan at 7%, your EMI will drop down to about Rs.38,000.
Moreover, lenders decide the LAP rates based on their internal risk assessment of an applicant. In this regard, the financial institution evaluates the individual’s credit profile, current financial status, and property details to decide on the rate.
For instance, an individual with a respectable credit profile, steady monthly income, and property in a prime location can secure a better interest rate than others. Applicants can refer to a loan against a property interest rate calculator for more information.
Furthermore, every financial institution sets a few loans against property eligibility criteria, that borrowers must meet to apply. Once they meet these parameters, they can then negotiate and lower the rate of interest applicable to their credit.
To make the borrowing experience even more convenient, individuals can look out for pre-approved offers extended by various HFCs on these credits. Credits are available on financial products such as a loan against property and a home loan and help simplify the application process. You can check your pre-approved offer by providing your name and contact number.
Similar to the rate of interest, the tenor of a loan against property also impacts the repayment regime. Usually, the lender offers a tenor of up to 20 years, but it can be lesser depending on the applicant’s credibility. The repayment tenor is comparatively higher than other loan options that provide similar benefits, such as personal loans. The longer tenor here makes it easier to pay off the amount borrowed without straining your savings.
Financial institutions typically allow borrowers to choose a tenor as per their convenience. However, individuals applying for a loan against property without income proof may not receive this benefit.
Moreover, a point to note here is that opting for a shorter tenor may result in higher EMI pay-outs but lower interest cost and vice versa. Here is an example for clarification:
If you avail of a LAP of Rs.60 lakh at a 7% interest rate for 15 years, then your will EMI will be about Rs.53,000 and your total interest payment will be around Rs.37 lakh. However, if you extend that tenor to 20 years, the resulting EMI will come down to around Rs.46,000, but your total interest outgo will increase to about Rs.51 lakh.
Therefore, while selecting the tenor, factor in your repayment capacity and then decide. You can also take the assistance of a loan against property EMI calculator to help you make the correct decision.
Along with these, two more factors play a significant role in a LAP application. These are:
- The property location and its age
- The repayment capacity or the monthly income of the applicant
These two factors may decide the total debt of an individual, but they can negotiate on these pointers by meeting the eligibility criteria and submitting the loan against property documents required in their proper order.
Loan against property interest rate, LTV ratio, processing charges, etc., primarily depends on the property and the applicant’s credit profile. Therefore, before availing of credit, compare between different loan offers to find the best possible deal.