If you are compelled to borrow ginormous sums of money for business or personal reasons, borrowing against assets by obtaining a mortgage on the equity of your property can prove to be a wise move. For business growth, study loans, or even settlement of health conditions, this secured credit facility enables you to avail ginormous sums of money at comparatively lower interest rates than those of unsecured loans.
As there are different lenders with different interest rates on the property loan, you are in a confused state of mind while negotiating the most favorable deal. Long-term growth and financial sustainability demand sharp comparison of the deals.
Let us proceed with this step-by-step illustrated tutorial and take you through step-by-step comparison of loan against property such that you would be able to take the best loan against property rate of interest decision according to your requirement.
What is Loan Against Property?
Loan against property, or LAP for short, is a guaranteed loan product wherein you can avail a loan by keeping your residential, commercial, or industrial property as security. Since the loan is being guaranteed in terms of an asset, the banks are giving you lower interest rates and longer tenors, i.e., 5-20 years.
Your Equated Monthly Instalments (EMIs) and cost of loan in the long run are directly influenced by interest rates. A reduction of 0.5% in the interest rate of the loan against property can mean colossal savings or paid extra in total in the loan tenure.
Shop around, you can:
- Lower EMIs
- Low cost of loan
- Choose convenient repayment terms
- Save from hidden charges
Determinants of Loan Against Property Rate of Interest
Before rushing around looking for similar quotes, the following determines your loan against property rate of interest:
Credit Score
The higher your CIBIL score (750 and above), the higher lenders’ trust in your ability to repay and hence the lesser the interest.
Type and Location of Property
Houses in favorable localities or with title clearances are safer and thus command higher prices.
Loan Amount and Tenure
Higher tenors or higher rates quoted above are what can drive the rate to some degree depending on the operation of the lender.
Income and Repayment Ability
Low current debt load, survival income, and improved debt-to-income ratio qualify you for better rates.
Lender’s Internal Risk Grading
Risk grading is undertaken by banks and NBFCs according to their internal underwriting policy, and it could be the reason behind your loan against property interest rate quote.
How to Compare Loan Against Property Offers
To compare loan offers, simply keeping in view interest rate only. Select your choice on the below given factors:
1. Compare Types of Interest Rate
Fixed Interest Rate: Never to change during the term of the loan. Best suited in the scenario of predictability of the budget.
Floating Rate of Interest: Keeps changing whenever there is a felt need in the market. Can be low at first but later increases.
Tip: If the interest rate of the market is likely to decrease, then a floating rate can be cost-effective.
2. Find out the Processing Fees and Concealed Charges
During a low interest rate in property, additional money can be used on processing charges, attorney charges, or technical inspection charges. Always check:
- Processing charges (around 0.5% – 2%)
- Legal and valuation charges
- Prepayment or foreclosure charges
3. Check the Loan-to-Value (LTV) Ratio
Lenders will provide 60%–75% of market value of property as loan against property. Take a high LTV lender in order to borrow more, but not at the expense of using up your interest rate or your repayment period.
4. Use Repayment Flexibility
To achieve this, take facilities like:
- Flexible Tenure: 15–20 years
- Part-prepayment facilities
- EMI holiday (moratorium) terms
- Balance transfer facilities
These words have connotations of reduced interest burden and greater loan control.
5. Calculate a Loan Against Property EMI
Online calculators enable you to calculate monthly installments using the loan size, repayment tenure, and rate of interest. This gives you the comfort of affordability even before applying.
Where to Compare LAP Offers?
LAP offers are compared by:
- Bank Websites: Banks and NBFCs publish their LAP rates on their individual websites.
- Online Aggregators: Websites like BankBazaar, Paisabazaar, and PolicyBazaar compare lender rates.
- Loan Agents or Brokers: They can negotiate on your behalf but ask a service fee.
- Customer Reviews: Feedback given by former borrowers may give some insight into the quality of service from the lender.
How to Choose the Best Loan Against Property Offer
Having compared a few lenders, do the following steps before making your choice:
Step 1: Shortlist Top 3 Offers
Rank them based on their lowest loan against property rate of interest, maximum repayment tenure, and minimum processing fee.
Step 2: Verify Lender Credibility
Choose a lender with clean procedures, effective customer support, and reasonable foreclosure terms.
Step 3: Examine Fine Print
Read the conditions and terms carefully. Verify whether there are precondition for prepayment charge, late payment charges, and reversal of rates.
Step 4: Verify Eligibility Criteria
Confirm whether you meet lender’s income, property, and documentation requirements.
Lowest Loan Against Property Rate of Interest Tips
Obtaining lowest quote:
- Keep your credit history in good shape
- Consider taking a short term, if feasible
- Negotiate with several lenders
- Apply on offer days or loan exhibitions
- Mortgaging costly property
Conclusion
The best loan against property rate of interest is a judicious choice from quoted interest rate. If you take your overall expenditure incurred, repayment terms, and financial preparedness into account, you can make a rational choice on loan against property best suited to you. Your property is a huge stick. Utilize it sensibly, and it will grant wishes long desired to be bestowed without disturbing financial balance. Then, compare wisely, lend wisely, and utilize what you possess to the maximum.
