Smart Borrowing: Navigating Property Loan Interest Rates

Over the last few years, due to an amalgamation of different global economic factors, interest rates on loans have increased considerably. However, overall, the current interest rates on loans make the economic environment ideal for borrowing funds.

Loans against property or property loans are an ideal borrowing option for those borrowers who wish to leverage the value locked in their property by availing of a loan against it. Loans against property are secured by collateral and consequentially, draw low interest rates.

This article sheds light on factors that affect loans against property interest rates and shares tips on what borrowers can do to avail themselves of the lowest property loan interest rates possible.

Factors that Affect Loan Against Property Interest Rates

1. Credit Score

The credit score is one of the key metrics that lenders assess to gauge the creditworthiness and repayment capacity of a loan applicant. An individual’s credit score takes into account their repayment history, credit utilization ratio, the type of credit they have and the age of their credit history and dependency on credit. One’s credit score is one of the most accurate ways of measuring the risk involved for a lender in doing business with a loan applicant. To be eligible for a loan on the most beneficial loan terms and conditions, a loan applicant must have a credit score of 750 or above. A credit score between 700 and 750 will make you eligible for a loan against property but will not give you the negotiating power you need to avail yourself of a property loan on favourable terms and conditions.

2. Quality of the Collateral

In the case of property loans, the quality of the collateral plays a key role in determining the interest rates on the loan. High-quality collaterals with a high resale value lower the risk for the lender and thus, lenders sanction low-interest rate loans to individuals who pledge a property with high resale value. On the other hand, properties with low resale value attract a high loan against a property interest rate.

3. Age and Income Stability

The loan applicant’s age and income stability impact their creditworthiness and thus, have a role to play in the loan terms and conditions extended to the borrower. Borrowers in their prime and having a stable job are more likely to get a lower loan against property interest rate deal than someone who is nearing retirement or is involved in a business with an unstable income.

4. Excessive Dependency on Credit

Individuals who are excessively dependent on credit and who have a high debt-to-income ratio find it challenging to get approved for a loan, even if they are pledging high-quality collateral.

Tips to Avail of a Loan Against Property at Low Interest Rates

Tip 1: To avail yourself of the lowest loan against property interest rates, maintain a credit score above 750.

Tip 2: Properties located in central locations or modern societies with all modern amenities and built by reputed builders have high resale value and such properties attract a low rate of interest. So, to reduce the effective interest outgo on your loan, opt to pledge a high-resale value property as collateral.

Tip 3: To increase your negotiating power concerning the loan terms and conditions, do not switch jobs frequently. If you are someone in their late 50s or early 60s, you can enhance your chances of getting a low loan against property interest rates by adding someone young with excellent creditworthiness as a co-borrower.

Tip 4: Always keep your debt-to-income ratio under 40% and do not apply for too many loans together. If one of your loan applications gets rejected, wait at least a few months before applying for another loan.

Keeping these simple things in mind will help you avail yourself of the lowest interest rate on your property loan. However, before you apply for a loan, make sure that you meet your lender’s loan against property eligibility criteria. Not meeting these criteria may lead to the rejection of a loan application. Further, the use of a loan against property EMI calculator is also recommended. This calculator will help you with repayment as well as prepayment planning.