Important Factors Affecting The Interest Rate On A Loan Against Property

It is a very good alternative for you to borrow loan against property if it is free of debts or mortgages in order to pay for various expenses at a reasonable interest rate. An individual can borrow between 40% and 70% of a property’s market value, depending on the type of property. Both residential and commercial properties may be used as collateral for loans by providing the registration documents and other necessary documentation.

Any loan’s interest rate is its most important component. A “loan against property” has a separate interest rate range whereas house loans are available in the 7.3 to 14 percent range. There are a lot of variables that can affect your application’s eligibility and interest rate. Let’s examine them now.

Your credit score:

The three-digit value of your credit score, which ranges from 300 to 900, tells the lender how reliable you are. Your risk ratio decreases as your credit score rises. A credit score of at least 700 is preferred in order to acquire a good interest rate.

When determining a borrower’s eligibility and the rate of interest that will apply to their loan. The credit score of that person is crucial. Any score over 650 is regarded as sufficient to obtain competitive rates on loans secured by property in the market. Consumers with low credit scores are approved for loans at higher interest rates because lenders consider them as high-risk customers. In rare cases, having a bad credit score may also cause loan applications to be denied.

Financial Situation of Loan Applicant:

The borrower’s profile affects both loan eligibility and the rate of interest. Lenders consider a number of variables while evaluating your application, including your age, type of employment, source of income, type of housing, previous credit history, and others. If a senior is near retirement age, they might not be eligible for a loan or. If they are, the interest rate will be much higher. They might be approved for a loan with a shorter term. But it would mean paying relatively high EMI each month. On loans secured by property, a person who makes less money will also pay more interest because they provide a higher default risk to the lender.

Type of property:

Lenders place a significant value on the sort of property against which a loan is applied. The property is inspected by surveyors employed by the lenders to determine its kind (whether residential or commercial), age, location, and market worth. The amount of the loan that can be accepted, the time frame for repaying the loan. And the interest rate that can be charged to the borrower are all determined by the lenders based on the surveyors’ reports. For commercial and residential properties, varying loan amounts and loan against property interest rates apply.

Old and worn-out buildings will have reduced property values. Which could lead to loans being accepted for smaller amounts with higher interest rates. A high-value home in an upscale neighborhood, on the other hand. Can provide the borrower with a larger loan value at a significantly lower interest rate.

Loan Tenure:

The rate of interest that will be charged on the loan is also based on how long it will be outstanding. The offered interest rate is lower because the repayment terms for these loans are longer—roughly 15-20 years. The borrower has the option to choose a shorter tenure in order to pay off the loan sooner. But in these circumstances, the lender typically charges a higher interest rate on the loans backed by property.

Tax Benefits:

The inability to collect tax benefits is among the most crucial aspects to take into account when making an application for a loan against property. Contrary to borrowers of other loans, such as housing or student loans, who are permitted to claim tax advantages. Borrowers of a loan secured by property are not allowed to obtain any government tax benefits. Taxes must be paid by the borrower on the money used to pay back the loan. Because of the potential tax benefits, customers are more drawn to house loans and student loans than other types of loans, even though their interest rates are greater.


Depending on the applicant’s property, credit profile, and risk tolerance, the interest rate, loan term, processing fee, and other loan criteria for properties offered by various lenders may vary significantly. As a result, before choosing a lender, it is crucial to compare loan offers from as many as feasible.

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