The RBI has kept the repo rate unchanged at 4% in October 2021. This decision has made the loan against property interest rate in India affordable.
The credit form offers substantial funds against simple eligibility and documentation. The affordable interest rate has further made the repayment structure reasonable. This aids borrowers to make substantial savings on interest payable and make timely repayments.
Additionally, certain factors that can affect the interest rate on loan against property which borrowers must know. These factors have been discussed below.
What are the factors that influence the loan against property interest rate?
Here are some common pointers that affect the loan against property interest rate. Potential borrowers must check these factors before making a loan application.
- Credit score and repayment history
Lenders assess the credit score and repayment history of applicants before levying the loan against property interest rate. This scrutiny is a part of their hard inquiry that assesses an applicant’s repayment capability and reliability.
Hence, individuals who substantiate a credible repayment history and maintain a 750+ CIBIL score can easily convince lenders to levy an affordable interest rate on loan against property. Since the risk of default is low, lenders will further offer better service and customised offers.
Individuals who lack credibility can practice certain habits like clearing outstanding dues, part-prepayments, etc. This will improve loan eligibility in general.
- Property value
The loan against property interest rate is again dependent on the mortgaged property’s valuation. Ideally, a residential property holds a significant value in the market. Applicant’s mortgaging such properties is likely to get substantial credit.
Additionally, the property location can also influence the interest rate levied. For instance, a property located in a prime location surrounded by necessary amenities such as markets, hospitals, etc., will hold a significant value in the lender’s eye.
Applicants mortgaging these properties can easily convince a lender to levy an affordable interest rate.
- Borrower’s profile
The loan against property interest rate is also dependent on a borrower’s profile. Certain factors such as age, income profile, employment status, etc., affect the interest rate and loan amount available.
For instance, a young salaried applicant can easily convince a lender to levy an affordable interest rate due to his/her workable years. They can substantiate their repayment capability.
- Loan tenor
The chosen tenor also influences the loan against property interest rate in India. Every borrowing bounds an individual into a repayment structure. Failing to identify one’s financial capability will lead to repayment issues or debt-like situations.
Choosing a longer tenor would increase the interest outgo, but it decreases the EMI outgo. Conversely, individuals who opt for a shorter tenor can make significant savings as their overall interest reduces.
Additional Link: Interest On Loan Against Property Tax Benefits
Alternatively, existing borrowers can opt for a balance transfer in their initial years of borrowing. They can shift their outstanding balance to a reliable lender offering affordable interest rate and customised services.
For instance, many HFCs offer affordable interest rates to credible borrowers. They also extend pre-approved offers that make a loan application hassle-free.
These offers are applicable on financial products like loan against property, home loan, etc. Check your pre-approved offers by entering a name and contact number.
- Interest type
Potential borrowers must understand the loan against property in India interest types. This will help in making an informed borrowing choice. Ideally, there are two types of interest rates levied on a loan against property. These are fixed-rate and floating interest rates.
Usually, the floating rates change depending on the external benchmark, while the fixed rates remain stable till the tenor ends. Individuals can consult a lender regarding the interest rate levied on their borrowing. It will again help make the right decision.
- Debt-to-income Ratio
Lenders assess debt to income ratio before making a loan approval. They evaluate an individual’s financial strength to repay liabilities while managing disposable income.
It is recommended to maintain a 40% or less DTI ratio to increase the chances of loan approval. If they can substantiate their repayment capacity, lenders will levy an affordable interest rate on the credit form.
One can also disclose their additional income source to ascertain the repayment strength. These income sources can include the earnings from rent, fixed savings, investments, etc.
These are some factors that influence the loan against property interest rate. Potential borrowers must keep the documents related to the mortgaged property handy to streamline the application.
Additionally, they should try improving the credit score and repayment capability to gain an affordable interest rate on the loan against property in India.