Loans against property, also popular as property loans or LAP, are a type of secured loan. Borrowers who avail of these loans pledge a commercial or residential property as collateral to avail of the loan. The borrower can use the property as they like through the tenor of the loan. For instance, if it is a residential property they are pledging, they can continue to inhabit it as they were before they pledged it as security. Similarly, borrowers can continue to earn rent from a commercial property they have pledged as collateral, until of course otherwise mentioned in the loan agreement.
Property loans are secured and therefore, the current interest rate on property loans is quite low. One can avail of a loan against property at interest rates as low as 8% p.a. If you meet your chosen lender’s loan against property legibility criteria and wish to avail of the lowest interest rate on your LAP deal, here are a few tips that will help.
Use Your Most Valuable Property as Collateral
Lenders decide the rate of interest to be offered to a borrower based on the quality of the collateral. If the property pledged as security has high resale value, the borrower will not only be offered a higher sanction but also a low rate of interest because when there is quality collateral involved, the risk involved for the lender in lending money goes down. So, if you have a property located in the centre of the city or a home with all modern amenities which is also very well-connected with the rest of the city, use them as collateral.
Make Sure Your Credit Score is 750 or Above
Many borrowers assume that since a loan against property is a secured loan, the lender will not look into their credit score. This is not true – it does not matter whether you are taking a secured loan or an unsecured one, know that your lender will check your credit score before taking a call on your application. If your score is below 750, your loan application will get rejected. Your CIBIL score is an important part of your overall loan against property eligibility criteria and therefore, you must never ignore it.
The tenor of the Loan
Lastly, the loan against property interest rate you get offered will also depend on the tenor of the loan you opt for. Short loan tenors involve lower risk for the lender and therefore, lenders sanction a low-interest rate on these loans. On the other hand, long-tenor loans attract a high rate of interest.
In conclusion, if you are planning to avail of a loan against property, know that the collateral you pledge greatly affects the loan terms and conditions, especially the interest rate you get on your loan. So, pledge your most valuable property as collateral. However, before availing of the loan, use a loan against property EMI calculator to calculate the loan amount you can afford to buy. Do not apply for a loan amount higher than what you are eligible for or you can afford to repay if you wish to experience a hassle-free loan application and repayment procedure.
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