Whether it is a commercial or residential property, an asset always proves its worth during a tough phase. You can get a consistent income from your property by either leasing it or renting it out. You can also use your property to finance your personal needs by availing of a loan against property, or LAP. While getting an affordable interest rate on a loan against property could be tricky, you can reduce your LAP interest rate by keeping a few things in mind:
- Property to be mortgaged
The type of property you are willing to mortgage has a significant impact on the interest rate on loan against property. Both commercial and residential properties have varying values. A commercial property may help you get a better deal as compared to a residential property. Apart from that, the rate of interest may also be affected by the property’s age and location.
- Property documents
On submission of documents for LAP, the lender’s initial point of inspection is the property paperwork. The lender will verify your title deeds, building plans, authority permissions, and other papers as needed. If your property has any legal concerns, your loan application will almost certainly be rejected. Therefore, it is always advised to get your property clear from any legal concerns to get a better deal on your LAP.
- Insurance papers
Your lender will examine your property insurance papers. An insurance policy on the property protects both your financial interests as well as the lender from a non-payment default. Your property becomes ineligible for obtaining a loan if you do not have insurance. As such, it is advisable to get your property insured not only because it protects your interests in the time of a mishap but also to get a competitive LAP.
- Income tax returns
The frequent filing of income tax returns (ITR) has a direct impact on your LAP eligibility and interest rate on loan against property. ITR supports your source of income generation. If you are filing ITR consistently for three to four years, your eligibility will improve. In brief, an ITR shows that you have a consistent stream of income to repay the loan, if approved.
- Loan tenure
The period of your loan has a big role in determining your EMIs and interest rate on loan against property. LAPs are generally long-term loans with EMIs that can last up to 10-15 years. The EMIs are higher for shorter tenure, and vice versa. If the loan is taken for a shorter period, some lenders may charge a slightly higher interest rate.
- Credit score
Your credit score is the most important aspect that will determine not just the LAP interest rate but also your LAP eligibility. If you have a low credit score, lenders may consider you a high-risk borrower and charge you a higher interest rate. Furthermore, if your credit score is much below the required limit, your loan application may get rejected. Therefore, to maintain your credibility, it is advised to pay off your dues on time.
- Rejections of previous loan application
Generally, financial institutions retain track of prior refused loan applications. These, however, differ from one lender to the next, and each has its own internal policy for determining creditworthiness and risk assessment. If your loan application is denied, it will appear on your credit report, lowering your chances of securing a loan. As a result, it is critical to figure out why your application was rejected and then go about resolving the issue.
In addition to the above factors, there are certain points in an applicant’s profile that determine the loan against property interest rate. However, we do not have direct control over these aspects. These factors are:
- Age
This is a crucial aspect in determining your loan eligibility. The age factor varies from one lender to another. Usually, financial institutions avoid lending to people who are above 60 years of age as it is considered to be the age for retirement; drastically reducing an individual’s earning capability.
- Source of income
Financial institutions usually consider you qualified for a loan if you have steady employment and a consistent source of income. Government employees, salaried employees and professionals who have work security and a guaranteed monthly income are often given higher priority. However, if your monthly EMI exceeds 60% of your monthly income, your loan is likely to be declined.
- Job profile
Consistency in your work shows a lender that you will be able to repay the loan without missing any payments. If you are found to be changing jobs frequently with no promise of stable work or business, the lender may refuse to approve your loan. This applies to both salaried and self-employed people.
Conclusion
LAP is an easy way to avail of a loan if you are in urgent need of cash. You can use this loan for various purposes such as home renovation, business purposes, and more. LAP is a secured form of credit due to which interest rates are comparatively lower than other unsecured loan forms. You can get a low interest rate on loan against property if you carefully analyze the aforementioned factors.
