We all want loans at low interest rates. But not many know exactly what factors decide their loan’s interest. Neither do they know which is the best loan for getting lower interest rates.
If you are looking for cheaper loans, applying for a loan against property (LAP) is the best option, no matter the financial obligation. And with some tips and tricks, you can secure a loan against property at the lowest interest rates.
In this blog, we will see what a loan against property is. We will also unravel the various ways to get the lowest interest rate for a loan against property in India. So, let’s dive straight in.
What is a loan against property?
A loan against property (LAP) is a secured loan wherein a borrower avails of a loan by pledging the property they own as collateral with the lenders.
Now you may ask, why does a LAP loan have the lowest interest rates?
Since this loan is secured against the property, lenders bear less risk. They can sell the property to compensate for the loss if the borrower defaults. That is the primary behind low interest on a loan against property.
Five factors that determine your rate of interest
Although, a loan against property has the lowest interest rates than other loan types, especially unsecured loans. There are a handful of other factors as well that affect interest rates, and they are as follows:
1. Credit Score
Lenders check credit scores to determine your creditworthiness. It is a numerical value between 0 to 900 and fluctuates depending on how diligently you pay back all your debts. Generally, borrowers with higher credit scores receive loans against property at the lowest interest rates.
2. Valuation of the property
Financial institutions offer you a loan against property at the lowest interest rates if your property’s value is high. Property valuation increases with time due to the steady growth of the real estate sector and the increased housing needs of the growing population.
Besides, valuation also depends on the type of property, residential or commercial, and the locality. You can also add value to your property by renovating or extending it.
3. Loan-to-Value Ratio
The LTV ratio is the percentage of the property’s value that you are borrowing. A lesser Loan to Value ratio shows that you are less risky for the lender, which results in you easily get a loan against property at the lowest interest rate.
If you plan to purchase a big-ticket item with a loan against property, try to make a bigger down payment. A larger amount as a down payment will reduce the LTV ratio resulting in lower interest rates.
4. Loan duration and amount
The duration of the loan, or repayment tenure, also affects the interest rate. Generally, the shorter your loan duration, the lower your interest rate. Additionally, if the loan amount is not very high, chances are that the interest rate will not be higher as well.
5. Market conditions
Market conditions in your country, combined with the inflation rate and economic growth, can alter interest rates from time to time. For example, a vulnerable and slow economy can lower loan interest rates and vice versa.
Ways to reduce the rate of interest
Below are some important points by which you can reduce your rate of interest.
1. Increasing your credit score
Be vigilant in paying off all your debts, EMIs and other credit card bills on time to increase your credit score. You can also automate the payments of recurring bills and expenses to boost your credit score. In addition, you can access your credit report on the website of major credit rating organizations and NBFCs.
2. Compare the interest rates with many lenders
Explore loan comparison websites online, where you can see offers from different lenders in one place and choose the best offer. Also, be mindful that a lender’s initial offer is not final. You can always negotiate better interest rates if you have a strong credit history.
3. Try to go for shorter loan periods
Use financial tools or loan calculators online to calculate the ideal loan tenure and amount based on your needs. Shorter loan terms can result in lesser loan interest rates against your property. So, repaying your loan amount as soon as possible will save you the most on interest payments.
Choose the right lender for your loan
If you want a loan against property at the lowest interest rate, your search ends here with us at Tata Capital.
We offer the lowest interest rates based on your eligibility criteria and financial profile. In addition, we offer tailor-made loan repayment schemes depending on your financial constraints. We also provide extra benefits like topping up your loan amount, service at your doorstep and insurance plans for the loan amount.
So, what are you waiting for? Visit the Tata Capital website to get a loan against property at the lowest interest rates.
22 May 2023
5 mins read
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