According to a report, the loan against property is anticipated to grow at 14% CAGR by the end of FY 2026. One of the important reasons for this growth is the affordable loan against property interest rate and high-loan quantum.
The increasing popularity of loans against property has become a high-end funding option for the majority of prospective borrowers. This loan variant enables borrowers to avail substantial amounts by mortgaging a commercial or residential property they own. However, the borrowed amount depends on the property’s current market value, where an individual can borrow up to 75-80% of its value as a LAP loan amount.
Since this debt instrument does not come with any end-use restriction, borrowers can utilise the funds to mitigate big-ticket to short-term financial requirements. Therefore, apart from considering mortgage loan interest rates, it is supremely important to consider other crucial aspects to make your repayment easier.
Factors to inspect while availing a LAP
Potential borrowers must take the following factors into account to maximize the advantages from LAP:
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Loan value
In the case of a loan against property, the maximum sanctioned loan amount depends on the valuation of the mortgaged property. Usually, lenders approve only a certain percentage of the property value and not the total estimated value. This percentage is known as the loan-to-value ratio. This ratio differs from one financial lender to another. Reputed financial institutions extend 50-80% of a property’s value as LAP.
Furthermore, such financial institutions provide pre-approved offers to reduce the hassle of availing a loan, thereby accelerating the application process. These lucrative offers are available on a wide range of financial products such as loans against property, home loans etc. Prospective applicants can check their pre-approved offer by providing their essential details.
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Interest rate
As a fundamental procedure, borrowers must scrutinize loan against property interest rates before applying for it. Ideally, interest rates of secured advances like LAP are usually lesser than unsecured advances. However, the rate differs from one financier to another. Thus, intended borrowers must do in-depth market research before applying for LAP.
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Credit score
Borrowers should follow the credit score factor before applying for a loan against property. It holds a significant relevance on loan against property interest rate and eligibility parameters. In addition, this score is an assessment of an individual’s credit repayment record and their reliability as a credit buyer.
Therefore, lenders emphasise this credit score when estimating their loan application and regulating LAP loan interest rates for such credits. Ideally, financiers consider credit scores of more than 750 as healthy for loan eligibility. But, on the other hand, a low score reduces a borrower’s loan approval chances, which proving how your loan against property eligibility factors gets affected by credit score.
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Loan repayment tenor
Generally, financial lenders extend a tenor of 15- 20 years to repay LAP. Such flexible tenors provide financial convenience, which is necessary for paying such high-loan value.
Alternatively, individuals must note that a longer tenor effectively reduces EMIs, which in turn increases the affordability of your loan. On the other hand, choosing a shorter tenor includes more EMIs but a low-interest rate. Thus, borrowers can take the help of online tools like EMI calculator to determine what matches their financial requirements.
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Processing fees and charges
Besides property loan interest rate, individuals must consider the associated fees and charges that come with the credit facility. For example, some lenders impose penalty charges, foreclosure and prepayment charges etc. Hence, it is crucial that borrowers must add all these charges while estimating the real value of availing a loan. These charges can significantly impact the borrowing cost of a loan and further affect the borrowers’ repayment ability.
The fees and charges for a loan against property are explained in detail when availing a LAP, and borrowers must carefully hear them out.
Hence, a loan against property offers a lower interest rate, high-loan value, longer repayment tenor and no end-use restriction. Therefore, it is the best financial option with multiple benefits.
Additional Read: 5 Ways to Reduce Home Loan Interest Rate in India
