To avail a LAP, prospective borrowers must check multiple pointers, such as the loan against property eligibility, document requirements, and others. However, the most important factors include the interest rate and the repayment tenor.
The interest rate and tenor of a LAP are primary deciding factors for overall affordability. This is because both these factors directly affect the EMI and influence the financial liability of an individual. The interest rate is directly related to the EMI, while the tenor is inversely proportional.
Why is interest rate important for a Loan Against Property?
The interest rate is a rate that financial institutions charge for lending money to individuals. This factor decides the overall affordability of a property loan, and a lower interest rate will make EMIs more benevolent. Additionally, a lower EMI will make financial planning easier for borrowers.
Why is tenor important for a Loan Against Property?
The LAP tenor is the chosen time period required by a customer to repay the borrowed fund. In most cases, leading lending institutions provide a tenor of 20 years, lowering the EMI liability. Individuals must learn that tenor is inversely related to the EMI amount; thus, a longer tenor will fetch a lower EMI, while a shorter tenor will fetch a higher EMI. But, unlike the interest rate, the tenor primarily depends on the prospective borrowers and lender’s decision. However, one must remember that opting for a longer tenor will significantly increase the total borrowing expense.
However, this EMI for a loan against property depends on myriad properties, and these factors are mentioned below.
Factors affecting loan against property interest rate
Following are the factors affecting the applicable interest rate on a LAP-
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CIBIL score
An applicant’s credit score is one of the primary deciding factors for the affordability of a loan against property. Most loan lenders need a CIBIL score of 750 and above as this indicates an applicant’s creditworthiness. Apart from it, credit scores above 750 also show a prospective borrower’s disciplined payment habit; hence, they are less likely to make credit defaults. Thus, applicants with high CIBIL scores are more likely to get lower interest rates from lenders.
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Income
Income becomes one of the primary criteria as it predicts the repayment capability of a borrower. Lenders believe that an individual with a higher source of income is more reliable to lend money than individuals with low income. So, most institutions advise adding all the income sources or applying jointly with a family member to increase the income for faster loan approval. Hence, applicants with a high and steady income source can be eligible for a lower interest rate.
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Tenor
The rate of interest on a loan against property is also dependent on the tenor. A longer tenor will decrease the monthly payable amount, while shorter tenors will increase the EMIs. Most leading financial institutions in India offer the opportunity to opt for a longer tenor, which eases the repayment capability of a borrower. Nevertheless, as stated before, one must take into consideration that opting for a longer tenor will increase the overall borrowing cost considerably.
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Age
As young applicants have a considerably higher chance of paying a loan against property, most lenders usually prefer to offer a lower interest rate. Hence, applying for the LAP at younger age makes it more affordable.
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Property
Property is also one of the primary deciding factors of loan affordability. Based on the property type, location, date of construction, and other factors, a lender will decide the LAP interest rate. For instance, if commercial property is mortgaged, the loan will be disbursed as a commercial property loan in most cases.
However, before applying for a loan against property, individuals can take the help of a loan against property EMI calculator available online to get details on financial liabilities. Besides, this calculator provides assistance in deciding the tenor.
In India, selected financers extend pre-approved offers that simplify and expedite loan processing. Such offers are available on various financial products like loans against property, home loans, etc. You can enter your name and contact number to check your pre-approved loan offer.
Thus, before availing a loan against property, individuals must check the loan against property eligibility and documents required to avoid rejection. In addition, make sure to check the interest rate and tenor as they will determine the overall affordability of the loan.
