Seven factors that influence your loan against property's interest rate

Many people seek a personal loan to meet their emergency expenditures. A good choice if you require a relatively small amount. However, if you require a bigger amount, there’s a better alternative available: Loan Against Property (LAP).

With LAP loans, you can borrow  funds from your bank against a property you own and pay back the loan amount, plus interest within the repayment period. The bank uses your property as a security in cases of default. Loans against property offer low interest rates compared to personal loans or other unsecured borrowings.

Most banks offer you a mortgage but some offer add-on benefits too. For instance, IDFC FIRST Bank comes with a loan against property that offers 80% of the market value of your property. Whether it’s a residential, commercial, or industrial property, you can leverage your property to secure loans of up to ₹15 crores at competitive interest rates. If you have rental income, you can also opt for a lease rental discount for an affordable loan. The online application process makes it easier for you to obtain a loan against property without hassles.  

However, when it comes to repayment, the factor most people worry about is the interest rate. Therefore, it is important to understand what affects the interest rate applicable for a LAP.

Factors affecting Loan Against Property Rates
 

Your credit score
 

Be it a housing, LAP, auto, or personal loan, your credit score is at the core of all your loan applications. A high credit score indicates responsible financial behaviour and works in your favour via higher loan amount eligibility and a lower interest rate.

Paying your bills on time, responsible use of credit cards, and ensuring you do not seek too many loans or credit cards at a time are some ways to keep your credit score high. Maintaining a credit score equal to or higher than 750 is recommended.

The property you wish to mortgage

Banks offer you a LAP after inspecting the property in question. Depending on its type (residential, commercial, industrial, warehouse), location, date of construction, etc., the mortgage amount is decided. So, properties in good conditions and premium locations will fetch a lower rate of interest.

The loan tenure

The longer the loan’s repayment tenure, the lower will be the rate of interest. Please note that, unlike personal loans, a LAP is a long-tenured loan, so it makes sense to discuss or negotiate the interest rate with your lender first.

Your profile

It is your profile the bank will check before zeroing down on the LAP amount and the interest rate. Your job profile, income, and location hold sway. If you are living in a metro city with a salaried job, you are more likely to get a favourable loan amount and interest because the banks will consider you as a solid candidate who will not default on repayment.

The type of interest rate you choose

There is fixed interest rate and then there is floating rate of interest, which is based on a benchmark index and will change from time to time. Before you sign the dotted papers of your LAP, discuss the type of interest rate you wish to opt for with your lender. Additionally, the LAP interest rates also depend on repo rates set by the RBI (Reserve Bank of India) which may vary from time to time.

Your income tax returns

When the lender asks for your income tax returns (ITR), it is to inspect your source of income generation. Consistent returns filing for the last three to four years will yield you a more favourable loan amount and interest. Please note, ITR is also asked when you apply for auto, home, personal loans, etc.

Your age

The younger you are, the lower is the interest rate a lender will levy because with younger applicants  banks have a higher chance of getting back their loan repayment in full.

LAP is a useful credit tool to access during emergencies and makes for a solid alternative to personal loans. It is also a better option to choose than indiscriminate use of credit cards.

Conclusion
 

A loan against property is a powerful credit tool when you need high-value financing during critical times. IDFC FIRST Bank’s LAP offering stands out with its high loan amount, competitive interest rates, flexible options, and transparent terms. By understanding factors that affect interest rates and planning wisely, you can make the most of your mortgage loan without compromising financial stability.