It is a very good alternative for you to borrow money against your own property if it is free of debts or mortgages in order to pay for various expenses at a reasonable interest rate. An individual can borrow between 40% to 70% of a property’s market value, depending on the type of property. By submitting the registration paperwork and other required documentation, loans can be taken out on both residential and commercial properties as collateral.
The interest rate is the most crucial component of any loan. A “loan against property” has a different interest rate range than home loans, which have rates ranging from 6.7 to 14 percent. The eligibility and the interest rate that may be provided on your application are influenced by a number of factors. Let’s examine them now.
CIBIL or Credit Score
Your credit score, which is a three-digit value between 300 and 900, shows the lender how trustworthy you are. Your risk ratio decreases as your credit score rises. To get a good interest rate, a credit score of at least 700 is preferred.
When determining a person’s eligibility for a loan and the interest rate that will be charged, their credit score is crucial. Any score over 650 is regarded as sufficient to obtain competitive rates on loans secured by real estate in the market. Because lenders view customers with low credit scores as high-risk, they approve loans for them at higher interest rates. In some circumstances, having a low credit score might also result in loan applications being turned down.
Financial profile of applicant
The percentage of interest and loan eligibility are both impacted by the borrower’s profile. Lenders evaluate your application while taking into account your age, kind of employment, source of income, type of residence, prior borrowing history, and other factors. A senior citizen who is close to retirement may not qualify for a loan, or if they do, the interest rate will be significantly higher. They might possibly receive a loan with a shorter term, which would require them to pay a very high EMI each month. A person who makes less money will also pay more interest on loans secured by property since they present a greater risk of default to the lender.
Type of property
The kind of property that has been used as collateral for a loan is very important to lenders. The property is inspected by surveyors employed by the lenders to determine its type—whether residential or commercial—age, location, and market worth. The amount of the loan that can be accepted, the time frame for repaying the loan, and the interest rate that can be charged to the borrower are all determined by the lenders based on the surveyors’ reports.
Different loan amounts and interest rates apply to commercial and residential properties, respectively. Old and worn-out buildings will have reduced property values, which could lead to loans being accepted for smaller amounts with longer interest rates. In contrast, a high-value house in a posh neighborhood might offer the borrower a bigger loan value at a considerably lower interest rate.
The rate of interest that will be charged on the loan is also based on how long it will be outstanding. Due to the lengthier repayment terms for these loans—roughly 15-20 years—the provided interest rate is lower. By choosing a shorter tenure, the borrower has the option of paying off the debt earlier. But in these circumstances, the lender typically charges a higher interest rate on the loans backed by real estate.
The inability to claim tax benefits is one of the most crucial things to take into account when applying for a loan against property. A borrower of a loan secured by property is not eligible to receive any government tax benefits, in contrast to borrowers of other loans, such as housing or education loans, which allow them to claim tax advantages. Taxes must be paid by the borrower on the money used to pay back the loan. Therefore, even though they have higher interest rates than other loans, consumers are more drawn to home loans and student loans since they save money on taxes.
Depending on the property, credit profile, and risk tolerance of the applicant, the interest rate, loan term, processing fee, and other aspects of loans against properties offered by various lenders may fluctuate significantly. As a result, it is essential to compare loan offers from as many lenders as possible before choosing one.