Loans against property are also known as property loans. These are a type of secured loan as the borrower pledges a property they own – residential or commercial – in return for loan money. Since the loan is backed by collateral or security, which the lender can sell for loan recovery in case of a loan default, lenders sanction loans against property at low-interest rates. Further, to make repayment easy and stress-free, lenders allow borrowers to repay the loan over a long tenor. If you are planning to get a loan for a property, know that lenders sanction 50% to 60% of the property’s value as a loan. Therefore, get your property evaluated by an expert before beginning the property loan application process. This will help you get the right loan amount against your property.
Further, if you are planning to get a loan for a property or a loan against property in India, you must also understand how different factors affect these loans in India.
Factors that Affect Property Loans in India
Quality of the Collateral
Since loans against property are loans backed by collateral, one of the most important factors that affect the interest rates as well as other things related to property loans is the quality of the collateral. Centrally-located properties with all modern facilities have high resale value and therefore, borrowers get a low rate of interest and higher loan sanctions against these properties. On the other hand, properties located on the outskirts have low resale value and therefore, these properties draw a high rate of interest.
Repayment Tenor
The tenor chosen by the borrower also affects the rate of interest as well as other terms and conditions related to the loan. Long-tenor loans carry a higher risk for lenders and therefore, lenders charge a high rate of interest on such loans. By the same logic, short-tenor loans are extended at low rates of interest.
Loan-to-Value Ratio
When it comes to property loans, the rate of interest determines the cost-effectiveness of a loan. A high rate of interest makes EMIs unaffordable and increases the total interest outgo. A low rate of interest, on the other hand, enhances the affordability of the loan. The loan-to-value ratio opted for by the borrower also influences the property loan interest rates. When borrowers opt for a low loan-to-value ratio, they convince the lender of their repayment ability and therefore, lenders sanction low loan-to-value loans at low rates of interest. On the other hand, high loan-to-value ratio loans often attract a high rate of interest.
Credit Score
Lastly, the credit score is another factor that lenders consider when assessing whether to sanction a loan and on what terms and conditions. Borrowers with a high credit score have high creditworthiness and repayment capacity. They are highly unlikely to default on a loan. Therefore, lenders approve loan applications from such borrowers quickly and sanction loans to them at low-interest rates. On the other hand, borrowers who have a low credit score often find their loan application getting rejected or repaying the loan at high-interest rates. Therefore, before the loan application, check your CIBIL score and make sure it is at least 750. If it is below 750, improve it first and then apply for a property loan in India.
Final Words
Property loans or loans against property are an easy way to arrange for the money, especially in times of need. Understanding the factors that affect it helps one get approved for a loan easily and quickly as well as negotiate with the lender for better loan terms and conditions.
Read More: Latest Eligibility Factors for Loan Against Property
.png)
0 Comments