Loan against property – using residential or commercial property as collateral – is a simple and popular alternative to cash when addressing different financial needs, like emergencies or unexpected expenses. And when looking at loans against property interest rates, you will observe that each lender offers different interest rates depending on the type of loan – secured or unsecured, short-term, or long-term. Additionally, several factors can influence the loan against property interest rates, such as the borrower’s credit history, type and valuation of the collateral property or borrower’s financial strength.
Six of the major factors influencing your loan against property interest rates are:
A young borrower is likely to receive more favourable interest rates compared to their older counterpart. Lenders generally consider younger applicants more capable of making timely repayment compared to older applicants that are nearing retirement and, hence, levy higher interest rates. But the situation may be reversed in the case of self-employed borrowers, where lenders may consider a young entrepreneur risky because of their lack of experience, whereas an older business veteran can seem more creditworthy because of their experience and expertise.
A strong financial profile can work in your favour when trying to get a lower loan against a property interest rate. Things like your employment history and financial track record give lenders an idea of your creditworthiness, and an established career can give you a better chance of getting lower interest rates. Self-employed borrowers, on the other hand, may receive higher interest rates because of the fluctuating income unless they have a well-established and steadily growing business. Different lenders, however, may have different rules and eligibility criteria when it comes to borrower profiles.
Loan-To-Value (LTV) Ratio
Loan-to-value (LTV) ratio is another crucial factor influencing loans against property interest rates. To calculate the LTV ratio, you need to divide the loan amount by the market value of the property you are using as collateral. For example, a loan of Rs. 25 lakhs against a property worth INR 75 lakhs will have a 33.33% LTV ratio. Generally, a higher LTV ratio attracts a higher interest rate from lenders.
Similar to any other loan, your credit history and past credit score play a crucial role in establishing your creditworthiness for a loan against property. A good credit score and a steady repayment history establish that you are a low-risk borrower, and lenders may offer you lower interest rates than borrowers with a poorer credit history. Additionally, if you have a history with the lender, it may also work in your favour when getting more attractive and favourable interest rates for a loan against property.
Type of Property
Factors like location, age, condition, ownership etc., affect the loan against property interest rates. For example, a new home – in excellent shape in the middle of town – with higher market value would attract lower interest rates as lenders are taking a lower risk in lending against such property. On the other hand, an outdated property on the outskirts of town will have a lower market value and higher interest rate as the associated risk is higher. Additionally, the type of your property – residential, commercial or industrial – can also influence the interest rates for a loan against property.
The loan tenure you opt for also influences the interest rates you get for a loan against property. A shorter tenure usually attracts higher interest rates, whereas a longer tenure can get you lower interest rates as the lenders want to earn a profit from the interest you are paying on the loan.
Keep these factors in mind when you are researching for different lenders to take a loan against property. If you understand the factors that can affect your loan against property interest rates and have all the information about your credit history and property value, you can get the best deal.
Is a loan against property a good idea?
If you are looking for a higher loan amount with longer tenure and lower interest rates, getting a loan against property is a good idea instead of opting for a personal loan. However, you need to have a high credit score and strong repayment history to avail favourable interest rates.
How much can I borrow against the property?
The amount you can borrow against property varies from lender to lender and depends on the value of your property. But most lenders generally allow you to borrow 80% – 85% of your property’s market value.
What can I use the loan against the property for?
You can use the loan against property for any personal – medical emergencies, higher education or a wedding – or business – business expansion, operational expenses or marketing campaigns – purposes; there are no restrictions. However, using the loan amount to invest or splurge on luxuries may send you into a debt cycle, and you may end up losing money.
A loan against property is a simple and popular way of raising cash for your financial needs. Loan against property interest rates vary from lender to lender and can depend on several factors. Some of the major factors affecting the interest rates for loans against property include the age, profile and credit history of the borrower, type of property, loan-to-value ratio and loan tenure. If you keep these factors in mind and do thorough research about your property’s market value and the terms of different lenders, you can get the most favourable interest rates for a loan against a property.
Electronica Finance Limited offers a quick, simple and transparent loan against property for MSMEs for flexible access to credit. With a maximum loan amount of up to Rs. 3 crore and flexible repayment over a tenure of up to 7 years, EFL can help you access money when you need it the most and be the perfect finance partner for your business.