18 JANUARY, 2022

A loan against property (LAP) is an unsecured loan that you can avail to fund your varied needs. You can provide your residential, commercial, or industrial property as collateral for taking LAP. You can repay the loan in equated monthly installments (EMI) which is based on your loan amount, tenure and interest rate offered. The rate of interest has a significant impact on your overall repayment. Therefore, knowing about the factors that affect your interest rates can help you get lower interest rates when opting for loan against property.

Factors Affecting Your Loan Against Property Interest Rates

  • Down payment

Lenders require you to pay at least 15-20% of the loan amount as a down payment. However, the higher the down payment, the lower is your loan amount. Therefore, paying a down payment can help you get a lower interest rate. In addition, when you pay a higher down payment, you have a bigger stake in the property that reduces the risk for the lender.

  • Credit score

. Your credit score reflects your creditworthiness and repayment capacity. A high credit score indicates that you are a responsible financial borrower and will repay the loan timely and helps you get lower rates. On the other hand, if you have a lower credit score, i.e., less than 750, the lender can offer you a higher interest rate to cover the lending risk. Therefore, it is suggested to check your credit score before you apply for loan against property.

  • Profile

Lenders assess your profile while determining the interest rates. Your occupation, income, job profile, city of residence, etc., affects the interest rates. The lenders can charge a higher interest if you are self-employed. Similarly, lenders offer lower interest rates to salaried employees, having a stable income.

  • Tenure

You have more time to repay the loan with a longer tenure, which reduces the chances of default. Therefore, with longer tenure for 10-15 years, you can get lower interest rates. Many lenders offer a higher interest rate for a shorter tenure. While the fixed interest rate is constant throughout the tenure, it is slightly higher than floating interest rates.

  • Property value

When you apply for a loan, the lender closely evaluates your collateral property. They do a legal and technical inspection to ensure that the property is not at any disadvantage and has a good sale value. Therefore, your property is a significant factor in determining loan against property interest rates. Often the interest rates differ based on the property’s location, type, date of construction, value, etc.

  • Age

If you are in your 20-30s, you can get a lower interest rate as you have more years to earn. On the other hand, lenders charge a higher rate for applicants who are nearing retirement.

Your interest rate is dependent on many factors. Lenders review every aspect before lending money against your property. Being aware of these factors can help you take a loan against property at competitive interest rates.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.