Loans provide essential financial assistance by offering immediate access to funds for various expenses or investments. Proper planning is an integral part of obtaining a loan. It ensures that the borrowing aligns with financial goals, allowing for informed decision-making on the loan type, repayment terms, and budgeting. It helps anticipate potential challenges and manage risks so that the loan serves its intended purpose without causing undue financial strain.
Broadly, loans are categorised into two different types: secured and unsecured. Secured loans involve a collateral or an asset. The borrower avails of a loan by pledging a residential or commercial property as a collateral. In the case of loan default, the lender can sell the property for loan recovery. Unsecured loans do not involve any security and are sanctioned solely based on the credit profile of the borrower.
Loans Against Property are a type of secured loan. While one can mortgage their residential or commercial property, some lenders may accept land as a collateral. Since Loans Against Property are a type of secured loan, the risk involved for the lender in lending funds is reduced considerably. Thus, lenders sanction Loans Against Property at competitive interest rates. Further, a Loan Against Property comes with a long repayment tenure, which makes it easier for borrowers to repay the loan.
Owing to these reasons, property loans have become a preferred financial product. If you are planning to avail of a property loan, aim for a low interest rate. This helps borrowers keep their EMIs within the manageable range and reduce the overall cost of borrowing. Therefore, borrowers are advised to do thorough market research and talk to various lenders to understand their loan options.
The focus of this article is on tips to reduce the Loan Against Property interest rates. However, before we go ahead and share these tips, let us understand the factors that affect Loans Against Property interest rates.
Factors that Affect Loan Against Property Interest Rates
1. Credit Score
When it comes to Loans Against Property or property loans, the credit score is important as it indicates a borrower's ability to repay a loan on time. The credit score is a three-digit number between 300 and 900 that indicates a borrower's creditworthiness and repayment capacity. Borrowers who have a CIBIL score of 750 and above are seen as creditworthy borrowers by lenders. Such borrowers are unlikely to default on loan repayment and therefore, lenders may offer property loans at low interest rates to such borrowers.
Therefore, if you want to avail of a property loan at low interest rates, check your CIBIL score before beginning the loan application process. You can go ahead with the loan application process if your credit score is 750 or above. If it is below 750, apply for a loan only after improving your credit score.
2. Employment Type and Income
Though Loans Against Property are secured loans and the borrower can sell the pledged asset for loan recovery in case of loan default, lenders try and make sure they are lending funds only to someone who will be able to repay the loan on time. They do so by assessing the borrower's income and employment type. Thus, borrowers employed with a reputed multi-national company or a public-sector company and having a stable job and income may get a loan at lower interest rates than borrowers who cannot establish income stability. Therefore maintain a stable source of income to avail of loans at competitive terms.
4. Borrower's Age
Lenders take into account the age of loan applicants as a crucial factor when determining various aspects of the loan agreement. Younger applicants typically have longer repayment tenures and may be eligible for higher loan amounts at better interest rates.
5. FOIR
Fixed Obligation to Income Ratio or FOIR is a parameter that lenders use to assess an applicant’s loan eligibility. A lower FOIR indicates that the applicant's monthly financial obligation is less than their income, meaning they have enough disposable income to repay the loan. On the other hand, a higher FOIR implies that the borrower may not have enough disposable income to repay the loan and may default EMIs. Hence, applicants with a lower FOIR may benefit from better interest rates.
Now that we have developed an understanding of the factors that affect Loan Against Property interest rates, let us look at what loan against property borrowers can do to avail of a loan at low Loan Against Property interest rates.
Tips to Avail of a Low Interest Rate on Property Loan
1. Negotiate With Different Lenders
If you want a low-interest rate, talk to various lenders and see what each one is offering. Then, you can negotiate with all the lenders for competitive interest rates. You can use a loan against property EMI calculator to compare different offers and figure out which lender is offering you the best deal.
2. Make Sure Your Credit Score is 750 of Higher
Borrowers who want to score a low interest rate Loan Against Property deal must make sure their credit score is at least 750. If your credit score is below 750, do not worry. By practising financial discipline, you will easily be able to improve your CIBIL score and make it above 750.
3. Go for a Short Loan Tenure
Yet another way you can avail of low Loan Against Property interest rates is by going for a short loan tenure. When a borrower opts for a long Loan Against Property tenure, the chances of loan default increase and therefore, the risk involved for the lender increases too. This is the reason why lenders offer lower interest rates on short-tenure loans and a higher interest rate on long-tenure loans.
4. Opt for a Loan Against Property Balance Transfer
The loan balance transfer is a facility that most borrowers offer these days. When borrowers opt for this facility, they get the chance to transfer their loan from one lender to another offering better interest rates or other beneficial terms and conditions. Since borrowers on floating interest rates can now close their loans without paying any fees or charges, opting for a loan balance transfer has become an easier choice.
Final Words
The Loan Against Property interest rate you get will play an important role in determining the feasibility of your loan. Use the tips mentioned in this article to avail yourself of the competitive interest rate and make repaying the loan convenient and easy.
FAQs:
The loan-to-value ratio refers to ratio of the total value of the loan to the total value of the property, expressed in percentage. If a borrower avail of a Rs.70 Lakh loan to buy a Rs.1 Crore property, the LTV ratio would be 70%.
Improving your credit score is easy. Pay your credit card bills and loan EMIs on time, maintain a low credit utilization ratio, apply for credit only when necessary and check your credit report regularly for errors that might be impacting your credit score.
Yes, as a borrower, you have every right to ask for low interest rates. Do not accept the first loan offer that your lender extends to you. Negotiate with them and try and avail of the lowest interest rate possible.
Ideally, since loan balance transfer involves a fee, borrowers must opt for this facility during the early years of their loan when the interest saved through a loan balance transfer will be much higher than the cost of the balance transfer.
If you want to compare loan against property interest rates, use a loan against property EMI calculator. These calculators are quick and accurate. Further, they are easy to use and easily available online.
Yes, if your co-applicant financial health and standing is impeccable, your lender may agree to sanction you a loan at a lower rate of interest.
You do not have to do anything special to avail of festive season offers on your loan against property. Simply apply during the festive season and you will automatically become eligible for these offers.
If you are finding it difficult to afford your current EMIs, a loan prepayment can help you reduce your loan tenor or loan EMIs. Prepayment also reduce the total cost of borrowing the loan and the effective interest rate payable on the loan.
DISCLAIMER:
While care is taken to update the information, products, and services included in or available on our website and related platforms/websites, there may be inadvertent errors or delays in updating the information. The material contained in this website and on associated web pages, is for reference and general information purposes, and the details mentioned in the respective product/service document shall prevail in case of any inconsistency. Users should seek professional advice before acting on the basis of the information contained herein. Please take an informed decision with respect to any product or service after going through the relevant product/service document and applicable terms and conditions. Neither Bajaj Housing Finance Limited nor any of its agents/associates/affiliates shall be liable for any act or omission of the Users relying on the information contained on this website and on associated web pages. In case any inconsistencies are observed, please click on contact information.
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