How to Reduce the Loan Against Property Interest Rate?

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 tenor, 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 tenors 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 Tenor  

Yet another way you can avail of low Loan Against Property interest rates is by going for a short loan tenor. When a borrower opts for a long Loan Against Property tenor, 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-tenor loans and a higher interest rate on long-tenor 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.