How Loan Against Property Interest Rate Is Decided Based on Your Profile - Loan Trivia


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Friday 23 September 2022

How Loan Against Property Interest Rate Is Decided Based on Your Profile

Loan Against Property

Before we talk about how the interest rate of loan against property (LAP) is decided, it is essential to know what is loan against property and how this method works. A loan against property is a secured loan that’s typically sanctioned against an asset that is pledged with the lender as collateral. The pledged asset can either be an owned piece of land, a house, or other commercial premises. An asset remains collateral with a lender until the loan is repaid. Now, we come to the factors that affect LAP interest rates.

Top Factors That Influence Interest Rate of Loan Against Property

Here are some top factors regarding your loan against property profile that lenders check to determine an appropriate interest rate.

Credit Score of the Applicant

The credit score is one of the key aspects of the applicant’s profile considered by the lending institutions when determining a loan against property interest rate. The score shows the creditworthiness of a property loan borrower.

In this regard, financial institutions make sure that their customers have a CIBIL score that is equivalent to or above 750. A high credit score reflects that a borrower has successfully repaid previous debts timely. As a result, borrowers also get to negotiate with the lender for competitive property loan interest rates when borrowing credit.

Age of the Applicant

Individuals can get a lower interest rate if they apply for a property loan at a younger age than towards their retirement. Borrowers get ample time for repaying their debts when they avail of any loan at a relatively younger age. Consequently, they can avail of the funds at market-best interest rates.

Annual Income

It becomes challenging for borrowers with an unstable income to pay their dues on time. Hence, lending institutions scrutinize the ITR, payrolls, etc., to make sure that individuals have stable income. It provides them with an assurance that their customers can repay without much difficulty. As a result, the risk factors of the lenders get lowered. Such borrowers can try and negotiate for a lower interest rate of loan against property.

Individual’s Employment Status

Like income, employment status also is a key determining factor of property loans. Typically, salaried borrowers can get a more attractive interest rate than aspiring non-salaried or self-employed borrowers. 

Besides, professionals associated with MNCs or other reputed organizations as well as government employees can enjoy a favorable borrowing rate. In this regard, individuals also need to know the strategies following which they can get a more attractive offer on the interest rate of a loan against property.

Advantages of Loan Against Property

Here are the benefits this loan product offers:

Easy Eligibility Criteria

Being a secured credit facility, financial institutions offer the loan basis lenient eligibility criteria. They focus on the current valuation of the pledged property. This way, LAP assists them in meeting financial requirements seamlessly.

Lump Sum Credit

Individuals can obtain a sizeable sanction with loans against property. This can be one of the most feasible credit options to raise funds immediately for any unforeseen, big-ticket expense. 

Tax Benefits

Individuals can also obtain tax benefits on loan against property. Following Section 24 of the Income Tax Act (ITA), individuals can avail of tax deductions on the paid interest amount of up to INR 2 lakh if they utilize the borrowed capital for buying or constructing buildings.

Concluding Thoughts

Now that you know the top factors based on which interest rate of loan against property is decided, it is essential to know about some important tools that can come to your rescue before you apply for a LAP loan. These are the property loan calculator and LAP EMI calculator. These tools are easy to use and available online 24x7. You are not required to pay any charges to access these tools. Use a property loan calculator and LAP EMI calculator to check your eligibility and estimated EMI outgo simply by entering some necessary details like the desired loan tenor, principal loan amount, and so on.

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