What Makes Loan Against Property Interest Rates Tick? Explained Simply
A loan against property is a type of loan that allows you to use your property as collateral for the loan. The loan amount is based on the market value of the property and the borrower can use the money for any purpose. However, the interest rates for these loans are higher than most other types of loans.
But what exactly makes the loan against property interest rates tick? Let’s dive in.
Loan against property or LAP is a secured loan which is taken against your own property. The interest rates for LAP are usually lower than those of unsecured loans because the lender has collateral to fall back on in case the borrower defaults. However, the interest rates for LAP can still vary depending on several factors.
First and foremost, the loan against property interest rate depends on the loan amount. The larger the loan amount, the higher the interest rate. This is because the lender is taking on a larger risk when granting a larger loan. The borrower also needs to show ability to repay the loan.
Apart from this, the lap rate of interest is also influenced by the tenure of the loan. The interest rate for a longer tenure loan is usually higher than that for a shorter tenure loan. This is because the lender is taking on a higher risk by lending the borrower money for a longer period. However, longer tenure loans also offer the benefit of lower EMI payments, thus making them more affordable for the borrower.
Additionally, the loan against property interest rate depends on the type of property used as collateral. For example, a commercial property will usually have a higher interest rate than a residential property. This is because commercial properties are considered to be a higher risk for lenders as they have a higher chance of being vacant or having tenants who do not pay rent on time.
Another key factor that determines the interest rate for LAP is the credit score of the borrower. The better the credit score, the lower the interest rate. This is because a good credit score indicates that the borrower is less of a risk for the lender. On the other hand, a poor credit score means that the borrower is more likely to default on the loan, thus increasing the risk for the lender.
The CIBIL score is an important parameter in deciding your loan against property interest rate. A credit score of 750 or higher is considered good and can help you avail competitive interest rates. However, a score below 750 might lead to higher interest rates or even rejection of the loan application.
The income of the borrower also plays a significant role in determining the interest rate for LAP. A borrower with a higher income is considered less risky than one with a lower income, and thus may be offered a lower interest rate. The borrower also needs to be able to showcase a stable income stream.
The loan-to-value (LTV) ratio is another important factor in determining the loan against property interest rate. LTV ratio is the percentage of the property’s value that is being borrowed as a loan. The higher the LTV ratio, the higher the interest rate. This is because a higher LTV ratio puts the lender at a higher risk.
The reputation and credibility of the lender also play a role in determining the interest rate for loan against property. A lender with a good reputation in the market may offer a slightly lower interest rate than other lenders. This is because such lenders are seen as more reliable and trustworthy by borrowers.
In conclusion, there are several factors that determine the loan against property interest rate, including the loan amount, tenure of the loan, type of property used as collateral, credit score of the borrower, income of the borrower, loan-to-value ratio, and reputation of the lender. Borrowers must keep all these factors in mind while applying for a loan against property and choose a lender who offers them the best deal based on these factors. Always do thorough research before deciding on the loan that best suits your needs and financial situation.
Read More: 7 Factors that Affects Loan Against Property Lowest Interest Rates
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