Do you know that the loan against property interest rate varies substantially depending on the applicant and lender? If not, keep in mind that the interest rate is determined by several factors, including the applicant’s creditworthiness, loan size, lending institution, and others. Since your monthly commitment is affected by the interest rate, it’s critical to plan ahead of time and look around for the lending institution. If you are planning to apply for a loan against property, follow these five tips to secure the lower interest rate.
- Check your Credit Report
Analyzing your credit reports should be the first step in securing the best loan against property interest rates. There are some renowned credit bureau agencies in India, and by visiting their website and sharing the required details, your report will be displayed on the screen. Inspect your credit reports for any irregularities that are lowering your credit score. If you have a concern, you can raise a complaint online in writing over the mail. You may also contact your existing lender and ask them to file a new report to the credit bureaus regarding your EMI payment and loan closure if the discrepancies are on their end.
- Work on Improving your Credit Score
If you have an average credit score, it is viable to strengthen it by paying off your outstanding debts and making all of your payments on schedule. If you have good credit, you will be able to get the best loan against property interest rates.
Several techniques can help you estimate how much money you will save on interest if you improve your credit score.
- Opt for a Shorter Loan Tenure
When you apply for a loan against property, try to choose the shortest loan term possible. If you do this, you will have to pay a higher EMI, but when you check the amount paid toward the interest component at the conclusion of the loan term, it will be significantly lower.
|Parameters||8 Years Term||15 Years Term|
|Loan Amount||Rs. 30,00,000||Rs. 30,00,000|
|Rate of Interest||9.50%||9.50%|
|EMI||Rs. 44,733||Rs. 31,327|
|Total Amount Payable||Rs. 42,94,336||Rs. 56,38,813|
|Total Interest Payable||Rs. 12,94,336||Rs. 26,38,813|
You can see how having a longer repayment period raises your debt burden. However, because the above computation is done at the same interest rate, a shorter term can assist you in acquiring a lower loan against property interest rates.
Apart from the shorter tenure, try and opt for a floating interest rate on your loan against property. The floating interest is a bit lower than the fixed rate of interest and can help you save money in the long run. Though, keep in mind that the floating rate is subject to market conditions.
- Increase Your Income
In order to secure an affordable loan against property interest rates, you must attempt to increase your income. Income is vital for deciding the interest rate. To understand this, let’s take an example.
Assume you are a lender who has received two loan-against-property applications. Those two applicants’ profiles are such that-
- 1st Applicant- One applicant has a monthly income of Rs. 1 lakh and will have to pay Rs. 30,000 (30% of their monthly earning) a month towards debt repayment.
- 2nd Applicant- The second applicant has a monthly income of Rs. 1.5 lakhs and they will also be spending Rs. 30,000 (20% of their monthly earning) a month towards repayment of their debt.
As a lender, you will choose the second applicant, as he/she possesses a lower credit risk. This is because the higher income makes it easier for the borrower to manage their monthly debt obligations. If your income reflects that you can manage your debts even if some minor financial crisis arises, the lending institution will offer you a lower loan against the property interest rate. Generally, financial institutions consider your application if your debt-to-income (DTI) is 40% or less.
- Lower Your Debt
In order to secure a lower loan against property interest rate, find out ways to decrease your debts. Always keep an eye on your debt-to-income percentage. Whenever you are left with spare cash, throw them towards paying down your debt. You may also cut down on your extravagant expenses like weekly dine out, shopping thrice a week, lavish trip, and so on.
Keep in mind that reducing your monthly obligations towards debt repayment is not the only way to secure a lower loan against a property interest rate. Refraining from shouldering multiple debt burdens can also work in your favour.
Putting up your high-value property as collateral to borrow funds is a risky financial move. Because if you default on your loan, the lender has the right to sell your property to recoup their losses. As a result, it’s critical to investigate several options for obtaining a cheaper loan against property interest rate and reducing your financial responsibilities.