Back in the day, loans were a scary concept for many people. They used to save diligently over the years to achieve significant milestones like funding education, weddings, or buying a home. However, now loans have become more acceptable and feasible. These loans let you afford things now and pay at your convenience. Loans fall into two primary categories: secured & unsecured. Secured loans require collateral, like property, which the lender can seize if you default. Conversely, unsecured loans rely mainly on your creditworthiness. Loans against property are a form of secured loan where you use your home or commercial property as collateral.
If you’re thinking of getting a property loan, aim for the lowest possible interest rates. Doing so keeps your monthly payments affordable and saves you money in the long run. Before signing any agreement, it’s smart to shop around, compare offers, and negotiate to secure the best deals. Let’s dive into some tips to secure low interest rates on loans against property.
Factors Impacting Interest Rate on Loan Against Property
The factors affecting the interest rate on a loan against property are important as they influence the structure of the loan and property loan interest rate. Let’s look at these closely.
- Loan-to-Value Ratio (LTV): This is how much of your property’s value you can borrow. For example, if your dream property costs Rs 2 crore and you want a loan of Rs 1 crore, your LTV is 50%. But if you need Rs 1.6 crore, your LTV jumps to 80%. Lenders usually cap it at 80%, but for pricier properties, they may offer less. Keeping your LTV low is smart; it lowers the lender’s risk and can snag you a lower interest rate.
- Credit Score: This three-digit number ranges from 300 to 900, which tells the lenders how likely you are to pay back your loan. Aim for a score of 750 or more for the best rates. It shows you’re a reliable borrower. If your score is below 750, you must work on improving it before applying for a LAP loan.
- Income and Stability: Lenders want to know you’ve got the cash flow to cover your payments. If you’re working for a stable company with a steady income, you’re more likely to get lower rates. Job-hopping or inconsistent earrings can harm your image in front of lenders and make them hesitant to approve your loan application.
- Type and Quality of Property: Residential properties in prime locations with all the bells and whistles often score lower interest rates. On the flip side, older properties in less desirable areas might mean higher rates. Lenders feel safer when your pledged property is your own home.
- Loan Tenure: Shorter loans are less risky for lenders, so they typically come with lower interest rates. If you opt for a longer tenure, expect higher rates because lenders take on more risk over time.
Tips to Secure Low Interest Rates on Loan Against Property
Let’s dive into savvy tips to secure low interest rates on loans against property. These tips will help the applicants to negotiate with the lenders while applying for a LAP loan.
- Shop Around and Negotiate: Many borrowers rush into the first loan offer they get out of urgency. Big Mistake! To bag a low-interest deal, chat with multiple lenders. Compare their offers using a loan against the property EMI calculator. Then, flex your negotiation skills to get the best deal possible.
- Boost your credit score: Aim for a credit score of at least 750. If your credit score is below that, don’t fret. Stay on top of your EMI and credit card payments. Missing deadlines can hurt your score, so set reminders or use auto-payments to stay on track.
- Choose a shorter loan tenure: Opting for a shorter loan tenure can score you lower interest rates. Lenders see shorter terms as less risky, which means better rates for you. Long-term loans, on the other hand, usually come with higher interest rates.
- Consider Loan Against Property Balance Transfer: Transfer your loan to another lender offering better rates or terms. It’s a move that can save you money, especially if you’re in the early years of your loan. Just be aware of any transfer fees involved.
- Wait for Festive Offers or Use Existing Relations: Timing is everything. You must wait for the right festive season when lenders often drop rates to attract borrowers. Also, banks tend to reward loyal customers with their best rates, so consider applying where you already have a good history.
- Go with a floating interest rate: You have two options for interest rates — fixed and floating. Floating rates fluctuate with market conditions, while fixed rates stay steady. Floating rates often start lower, but keep an eye on market changes as they affect your rate over time.
Documents Required for Loan Against Property
The applicants must keep the documents handy while applying for a loan against property. For smooth flow to apply for a loan against property, you must know the documents required.
- Proof of Identity: PAN Card, Passport, Driving License, Voter ID, etc.
- Proof of Address: Passport, Electricity Bill, Aadhaar Card, etc.
- Property Documents: Copies of the original sale deed, allotment or possession letter, NOC from the society
- Proof of Age: Passport, PAN Card, etc.
- Income Proof: Latest Income Tax Return Certificate, Form 16, salary slips, audited financial statements, certificate of practice, qualification certificates, Shop Act License, Sales Tax Certificate, etc.
Conclusion
The interest rate you get on your property loan Interest rate calculator will significantly impact how easy or challenging it is to pay off your loan. Follow the tips listed above to secure the lowest possible interest rate, making it simpler and more convenient to repay your loan. Typically, opting for a lender offering the lowest interest rates is advisable because it reduces your monthly EMI and cuts down on your overall interest expenses. However, in addition to interest rates, consider other factors like loan duration, amount, LTV ratio, processing fees, and how quickly the loan can be disbursed when comparing mortgage loan options.
