A loan against property (LAP) is an easy way of borrowing funds for individuals who own immovable assets. By pledging property as collateral, one can avail of a loan for various purposes including business expansion, further education, medical emergencies, weddings, and vacations.
Loans against property are preferred by a large number of Indians due to their various benefits such as attractive interest rates, high loan amounts, tax benefits, and easy disbursement, among others. While the interest rates offered on LAPs are generally lucrative due to the security of collateral, there are certain ways to get better interest rates on a loan against property.
You can find loans against property interest rate calculators online that have made it easier to calculate the interest rates on loans offered by various lenders. We take a closer look at how you can get an affordable interest rate on a loan against a property.
Compare the interest rates from top lenders
It is imperative that you thoroughly research the market interest rates before you zero in on a loan against property. The current interest rates for LAPs in India range between 8.2% p.a. and 14.50% p.a. Moreover, the interest rate offered to an individual depends on various factors including loan tenure, type of property pledged, and credit profile of the borrower.
First and foremost, you should check the interest rate from your bank. Due to a long-standing relationship with your bank, you might be able to get a good rate of interest on a LAP. However, you must also consider the top lenders in the market, such as Bajaj Housing Finance, and compare their rates of interest.
Using the loan against property interest rate calculator on the lender’s website is a good way to quickly check the interest rates being offered.
Other than the interest payments, you must also factor in other charges on a LAP such as processing fees, late payment fees, and prepayment liability. Taking these factors into account helps you determine the financial viability of a particular LAP.
Choose a suitable type of interest
Making the right decision between a fixed and a floating interest rate can further ensure affordable interest payments on your LAP. You should consider your financial requirements and future possibilities to arrive at an informed decision in terms of the kind of interest.
While individuals who take a loan on a floating interest rate are prone to be affected by the market rate fluctuations, they can benefit when the market rates are predicted to decrease. On the other hand, those who take a loan on a fixed interest rate can benefit when the market rates are expected to go up.
Check your eligibility beforehand
It is important to remember that applying with various lenders for a LAP is risky, as every rejection will negatively impact your CIBIL score, which will consequently result in higher interest rates offered by the lenders. Thus, checking your eligibility for a particular LAP before applying is a good idea. An easy way to do the same is by visiting the lender’s website. Furthermore, you can check your pre-approved offer with the lender to quickly ascertain your loan sanction amount beforehand.
Borrow the minimum amount required
One of the striking advantages of taking LAPs is the fact that they offer loan amounts ranging from 60% to 90% of the market value of the pledged property. Depending on the lender and the borrower’s profile, some lenders might even sanction a higher amount on a LAP.
Due to this reason, it is easy for one to get tempted to borrow an amount higher than what they need and what they can afford. Nonetheless, it is recommended that you avoid over-borrowing in case of a LAP.
If you borrow more than what you are eligible for, you may be charged a higher rate of interest due to a higher risk of defaulting on the payment. Additionally, always calculate the EMI payments on a LAP using a loan against the property EMI calculator before settling on the loan amount.
Choose the right property as collateral
If you or your family own more than one property, choosing the right kind of property to pledge for your LAP can get you better interest rates. For example, a high-value property in an upscale neighborhood can fetch you a lower interest rate. On the other hand, an old, dilapidated property in a low-value neighborhood may not be able to get you the best interest rate. Higher the value of collateral, lower the interest rate, and higher the loan sanction amount.
With the advent of loans against property interest rate calculators, it has become extremely convenient for one to check the interest rates offered by various lenders. You can get the best interest rate on a loan against property by comparing the interest rates offered by the top lenders, opting for the right type of interest, checking your eligibility before applying, borrowing the minimum amount required, and pledging the right type of property.
Sahar Rashid is the founder of the BenjaNews and the iPhone-Appstore website. She is a professional blogger and article writer.