Maximize Your Assets: Understanding Loan Against Property Interest Rates

Secured loans are a type of loan that borrowers avail of against an immovable asset. This immovable asset could be gold, land or a residential or commercial property. Loans against property or property loans are loans availed of against a residential or commercial property or a piece of land. Since these loans involve collateral or security, lenders sanction these loans at low interest rates for the risk involved for them is minimal in the case of such loans. Loans against property or property loans come with a long repayment tenor of 18 to 20 years. Since the tenor involved is quite long, even a small difference in the interest rate offered can help borrowers save considerably on the total interest outgo.

In this article, we look at the factors that affect loans against property interest rates and what borrowers can do to secure a low-interest-rate property loan.

1. Quality of the Collateral

In loans against property, the quality of the collateral matters a lot. High-quality collaterals considerably lower the risk involved for a lender and therefore, help borrowers secure a low property loan interest rate deal. So, what are high-quality collaterals? Properties located in central locations, properties having all modern amenities, newly built apartments, etc. are considered high-quality collaterals as these properties have high resale value. Borrowers who pledge high-value collateral generally end up securing a low-interest-rate property loan deal.

2. Credit Score

When it comes to loans against property, the credit score is important too. To be eligible for a loan, one must have a credit score of at least 750. Borrowers whose credit score exceeds 750 can get excellent conditions on their loan, including low-interest rates. An excellent credit score indicates high repayment capacity and creditworthiness and therefore, borrowers with an excellent credit score are offered the lowest interest rates.

3. Job and Income Stability

Even though loans against property are backed by collateral, lenders do not want to lend money to borrowers who do not have a stable income as such lenders are more likely to default on loan repayment. In the case of property loans, lenders can sell the property for loan recovery but the process of selling a property is not easy. Thus, lenders look for borrowers who have a stable income and job and are less likely to default on loan repayment.

4. Loan-to-Value Ratio

Under loans against property, borrowers can borrow up to 70% of a property's value as a loan. However, borrowers who avail themselves of a low loan-to-value ratio loan can get a better, lower interest rate.

5. Loan Tenor

The longer the tenor of the loan, the higher the risk of a borrower defaulting on loan repayment. Thus, short-tenor loans help borrowers get lower and better interest rates than short-tenor loans.

If you are planning to apply for a loan against property or a property loan, do your research, talk to a few different lenders and negotiate. In the end, go with the lender offering the lowest interest rate deal. This will help you a lot in the long run.