Loan against property (LAP) is a beneficial tool for borrowers to raise finance for various business and personal requirements. It is a loan provided by the lending institutions against the mortgage of a residential or commercial property. The lender holds this property until the repayment of the entire loan amount. However, the ownership remains with the borrower only.
The loan against property interest rate is comparatively lower than that of an unsecured loan. However, the rate of interest charged by the lenders is determined by various factors, such as your credit score, repayment capacity, property value, and the amount of loan you wish to avail.
Four Factors Affecting Loan Against Property (Lap) Interest Rate
Let us understand how these factors play a crucial role in affecting the LAP interest rates.
1. Credit score and repayment history
A bad credit score is the last thing you would want as it will get you low-interest rates on your loan against property. The credit score is like your financial report, which indicates your credibility to repay the loan on time. Along with this score, the lender also evaluates your repayment history to check your timely repayments of monthly installments on your previous loans. Thus, always try to maintain a good credit and repayment record by avoiding any late payments, cheques bounces, and payment defaults. A solid score forms a good impression on the lender and increases your chances of securing a low-interest LAP.
2. Type and value of property
This is another vital factor that plays a crucial role in determining the loan against the property interest rate. There are mainly two types of properties you can pledge to avail LAP – residential and commercial. Since the prices of both these property types are different, the interest rate charged by the lender may also differ for them.
Further, the age and location of the property affect the LAP interest rates to a large extent. A new property is considered more valuable as compared to an old one. Similarly, a property located in an isolated location with poor infrastructure and connectivity attracts higher interest on loans. On the other hand, a property in a more desired locality with excellent amenities have high resale value and results in lower interest rates.
3. The loan amount and tenure
The loan against property is generally provided for 10-15 years. Longer the tenure, higher will the interest, and the overall costs. Thus, it is advisable to apply for LAP for a short tenure as a lender provides lower interest rates on short-term loans.
Likewise, the loan amount is also essential while calculating the LAP interest rates. The rate of interest charged by the lender is usually lower on higher amounts and vice versa. Moreover, every lender offers a loan against the property calculator, which can assist you in calculating the EMIs and the amount of interest to be paid after each month. This way, you can quickly assess the monthly loan installments and prepare a repayment schedule accordingly.
4. The job profile of the borrower
Both salaried and self-employed workers are eligible to avail loan against property. However, the interest rates may differ for both of them. For example, a salaried professional is considered to have a low-risk factor, which means that the lenders may provide lower rates on LAP to them. On the contrary, self-employed professionals have to bear high-interest rates due to their unstable income.
Interest rate is one of the crucial factors that must be considered while financing a loan. While low rates can ease your repayment process, high-interest rates can make your monthly repayments challenging, thus putting a strain on your financial and mental health. Hence, you must keep in mind the above factors as they can help you grab better deals on loans against property interest rates.