Funding big-ticket purchases or sizable expenses such as overseas education or home renovation can put a serious dent in your savings. In some cases, you may not be able to afford such an expenditure out of pocket. This is when you can consider alternate financing options like a loan against property. With a property loan or mortgage loan, you get access to an ample sanction that you can repay over a lengthy tenure. Such a financing option is quite effective when you’re looking to address priorities without breaking the bank. However, to ensure that your experience is favourable and affordable, you need to secure the best possible property loan interest rate.
To do this, the first step is to compare offerings by different lenders, be it banks or NBFCs, in the market. The mortgage loan interest rate is dependent on several factors, some linked to the applicant’s financial profile and others based on the lender’s internal policies. Of course, the property loan interest rate is also dependent on external policies of the RBI.
You can conduct a check on a third-party website and compare the interest rate offered by different lenders and choose the one which best suits your budget. Now, once you’ve narrowed down on a few options, you can consider approaching lenders to know their final offering. But, before you do, you should know that there are a few factors that affect the final property loan interest rate offered to you. Here’s a quick breakdown.
Type of property
Lenders assess the final property loan interest rate offered to you based on the type of property you pledge as collateral. Commercial and residential properties have different market values and so, the interest rate offered is also different. Moreover, the age and condition of the property may play a role in the final decision too.
Your credit score is one of the most important factors of your financial profile. Lenders use it to assess your creditworthiness and this is why it is important to have a high credit score. Typically, meeting just the bare minimum of 650 to qualify for the loan will not get a favourable property loan interest rate. You may need a higher score of 750+ to negotiate with the lender to truly bag a good deal. Alternatively, having a low score will result in a higher interest rate mainly due to the fact that lenders perceive you as posing a higher risk.
Choosing a longer tenure for LAP Loan translates to smaller EMIs, which lowers the risk of defaults. Although you should remember that a long tenure attracts more interest overall. However, if you choose a shorter tenure, lenders are likely to offer a higher rate of interest on account of the added risk.
Borrower’s financial profile
Your financial profile is another key factor lenders assess as it dictates whether or not you can keep up with payments. Here, a stable income, healthy savings and type of employment all factor into the final decision.
Remember, a low loan against property interest rate shouldn’t be the only criteria you go by. In some cases, you may end up paying fees and incur additional charges that could very easily turn a pocket-friendly option costly. Pick your lender wisely and only after accounting for all the other charges that come along with it.