loan against property

4 Factors That Influence Your Loan Against Property Interest Rate 

A loan against property refers to a secured loan against a property asset pledged as collateral. Such assets can be a house, commercial premises, or owned land pieces. The property is the collateral with the lender until the repayment of the entire loan amount. Borrowers repay the loan amount at regular intervals as equated monthly installments (EMI). 

With the help of a loan against property EMI calculator, borrowers can calculate the amount of EMI against the desired principal and the prevailing interest rates. They can adjust the keyable values as per their financial needs and ease of repayments. 

Pledging property to avail of a loan has become inherently common among borrowers in India. Whether you need to finance your or your loved medical treatment or pay for your children’s higher education, you can use your property to take a loan and then repay the loan amount in flexible EMIs. 

What is Loan Against Property?

A loan against property is a secured loan that allows borrowers to access funds immediately by giving their property as collateral. Both residential and commercial properties are considered collateral. Lenders offer a loan amount based on the value of the property. For instance, if your property is worth Rs. 50,00,000/-, you will likely receive up to Rs. 40,00,000 as a loan depending on your age, income, credit score, repayment capacity, current financial obligation, etc. 

Compared to unsecured loans, you can avail of a higher loan amount, lower interest rates, and flexible loan tenure. However, you must assess your needs and evaluate your affordability by using an online property loan calculator before submitting your loan application. 

Here is a complete guide to LAP and four factors that influence the loan against property interest rates. 

Factors Affecting Loan Against Property Interest Rates 

Before finding out their loan against property eligibility, borrowers must compare and evaluate the schemes and interest rates various financial institutions offer. This comparison is essential as the interest rates determine the total burden on the borrower. Following are the factors which affect the interest rates of loans against properties-

  • Credit Score

A credit score reflects the borrower’s financial well-being and status. Whether or not the borrower will be able to pay the Equated Monthly Installments (EMI) depends on the credit report prepared by credible organizations. An organization such as Credit Rating Information Services of India Limited (CRISIL), Credit Analysis and Research (CARE) Limited, and Credit Information Bureau (India) Limited determine an individual’s credit score. Most credible lenders accept CIBIL scores of 725 to extend loans; however, a score of 750 or higher is ideal for ensuring favorable borrowing terms with the lender. 

  • Profile of the Applicant 

The borrower’s profile, including age, employment status, financial records, monthly income, and income tax returns, also influence the loan against property interest rates. For instance, older applicants with irregular and fluctuating sources of income are likely to be charged with higher rates of interest. On the other hand, younger applicants with regular and fixed sources of income or salaries are likely to be charged with lower rates of interest. 

  • Repayment Tenure 

Loans against property are high-value loans that incur sizable EMIs. The period of repayment in installments is the ‘repayment tenure’. The lesser the duration of repayment, the more is the willingness of the financial institution to lend a loan against property. Moreover, it is easier to get loan approval for shorter repayment tenures. However, borrowers with the desired credit profile can benefit from long-term tenures and pay the loan amount comfortably. 

  • Mortgaged Property 

For availing of secured loans, the borrower must provide collateral to the lender. The property provided as collateral is evaluated and assessed by the financial institutions based on the condition, insurance, location, age, and documentation. For instance, a property located in the prime location and maintained well is likely to have a higher market value resulting in lower interest rates. However, an old property situated on the city’s outskirts can fetch more elevated interest rates to the borrower. 

Documents Required for Availing Such Loans

After the borrower has checked the loan against property eligibility, it is imperative to have proper documentation while availing of loans. It ensures the smooth and timely transfer of the loan amount. Here is a list of all the documents the borrower needs for getting loans against property: 

  • Identity Proof

It can be a passport, driving license, Aadhaar card, or PAN card. 

  • Residence Proof

Borrowers can submit this in the form of utility bills for the property, including electricity or telephone bills. 

  • Form 16

Submit Income Tax Returns for the preceding three years with relevant financial statements.

  • Salary Slips

If the borrower is a salaried person, they must submit the salary slips for the preceding three months.

Benefits of Availing Loan Against Property

The advantages of availing of such loans are listed below. 

  • Tax Advantages 

Borrowers can claim a tax benefit on such loans under section 37 of the Income Tax Act. However, the deduction is eligible only if the loan is used for business purposes. 

  • Rate of Interest

Financial institutions give such loans at lower interest rates. It helps reduce the total amount payable at the end of the repayment period. 

  • Utilization for Multiple Purposes

Such loans can be utilized either for business or personal use. This flexibility enables borrowers to take loans as per their requirements. 

Tax Benefits On Loan Against Property 

Unlike a home loan or an education loan, you are not eligible to avail of tax deductions under the Income Tax Act 1961 by applying for a loan against property. You will need to pay taxes on the amount that you are using to repay the loan amount. It is common to see borrowers opt for home loans or education loans for availing of tax benefits. So, you must be aware that you will not get tax benefits on a loan against the property before applying for one.

Conclusion 

Proper financial backing is essential to ensure the sufficiency of funds during exigencies and for adequate management of income. A loan against property acts as an immediate source of finance for borrowers during times of crisis and can be used for multiple purposes. Moreover, there are various benefits of such loans, including easy availability, repayment tenures, and tax advantages. For availing of such loans at attractive interest rates and flexible repayment tenures, contact us.

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