When applying for a loan, the interest rate is an essential component as it determines the cost of borrowing. However, the loan against property interest rate is not going to be one fixed interest rate for all applicants. It differs depending upon a couple of essential factors that are crucial for you to know to get the best interest rate. Here are the top factors that determine the loan against property interest rate:
1. Type and state of the property
When you apply for a loan against property, the property in question plays a role in determining the loan against a property interest rate. All such factors consider the type of property you are offering as collateral, its condition, how well it is maintained, how old it is, which location it is in, its value, etc. For instance, a well-maintained residential property located in a prime area will fetch a lower interest rate than an old, beaten-down property on the outskirts of a city.
2. Your age and income
Your loan against property interest rate also depends upon your age and income. The younger you are, the better interest rate you can get compared to someone nearing retirement. That’s because you have decades of working years ahead of you, which ensures a steady flow of income. Along the same lines, a salaried individual with a stable income may find it easier to get a better loan against property interest rates and terms than a self-employed individual with a fluctuating income. This is because, in the latter case, the chance of not being able to meet the Equated Monthly Installment (EMI) obligation on time is higher.
3. Your credit score
Credit rating agencies such as CIBIL provide a credit score that the lenders check when you apply for a loan. Your credit score is assessed by the lenders to determine your creditworthiness and your credit history to determine whether you are a high-risk borrower. Hence, depending on your credit score, they will assess your loan against the property interest rate. For instance, a CIBIL score can range between 300 and 900, and 750 and above is considered ideal. Hence, if your CIBIL score is above 750, you will be able to get a lower interest rate.
4. Loan tenure
Typically, for loans with a shorter term, the loan against property interest rate tends to be higher than loans with longer periods. But it’s important to note that your interest outgo will typically be lower in short-term loan tenures, so you should consider what the ideal tour for you is while looking at all factors and not solely the rate of interest.
Now that you are aware of the top factors that determine your loan against property interest rate, you can work on making your application more robust. For instance, if your CIBIL score is low, you can look at ways to improve that before applying for the loan if you have sufficient time before you need the funds.