What Is the Interest Return Rate on a Loan Secured by Property?

Loan against property are also known as property loans. In these types of loans, a borrower pledges their commercial or residential property as collateral. In return, they receive loan money which they can repay over a period extending up to 20 years. Most lenders sanction anywhere between 50% to 60% of a property’s market value as a loan. Since loans against property are a type of secured loan, the risk involved for the lender in the case of these loans is quite low. The lender can sell the collateral for loan recovery in case the borrower defaults on loan. Owing to this reason, lenders charge low interest rates on loans against property. Before we talk about loan against property interest rates, let us look at why property loans have suddenly become so immensely popular. 

Benefits of Loans Against Property 

Zero End-Use Restrictions 

Loans against property or property loan funds come with zero end-use restrictions. In other words, the borrower can use the money as they like. This is a huge advantage. Borrowers can use the money availed of to start a business, fund a child’s wedding or pay for their education, take care of a parent’s medical surgery, go for debt consolidation, etc. If a borrower is paying their EMIs on time, the lender will not concern themselves with how the loan money is being spent. 

Substantial Loan Amount

In the case of loans against property, the LTV ratio varies between 50% to 60% of the property’s value. If the collateral you are pledging is worth Rs.1 Crore, you will be able to get anywhere between Rs.50 Lakh and Rs.60 Lakh as a loan. No other loan offering gives borrowers access to such a substantial amount of money and gives them the right to use the money as they like. 

Low Interest Rates

As mentioned previously, loans against property are secured loans backed by collateral. Thus, the lenders know that there isn’t much risk involved for them in the case of these types of loans. Therefore, lenders sanction these loans at low interest rates. Currently, loan against property interest rates vary between 8% and 25%. The interest rate that a borrower gets offered depends on several factors, such as the borrower’s age, income, credit factor, etc. Developing an understanding of the factors that affect the interest rates offered to a borrower can help a borrower avail of better loan against property interest rates. 

Long Repayment Tenor 

Loans against property come with a long repayment tenor. Lenders understand that loans against property are long-term, big-ticket loans and therefore, they give borrowers ample time to repay the loan. A borrower can easily get anywhere between 15 to 20 years to repay their property loan. 

Safe and Easy to Avail of

Until a few years ago, most borrowers were wary of loans against property since these loans require borrowers to pledge an asset as collateral. However, with time, people have realized that a loan against property is as safe a loan option as any other when taken after proper planning. Problems arise only when a borrower borrows more than they can repay. Further, the loan against property application process is easy. The document requirements are minimal and the money gets disbursed into the loan account quickly. 

Loans against property offer several advantages. So, if you need money to take care of a financial emergency, avail of these loans. However, use an EMI calculator to figure out the loan amount and EMIs you can afford to pay each month and do not borrow more than you can repay.