Proven Ways to Reduce Your Loan Against Property Interest Rates

What is Loan Against Property Interest Rates?

The Loan Against Property interest rates means the rate charged by lenders on the borrowed amount. Interest rates determine your EMI and overall interest rate outgo over the loan tenure.

A minor change or fluctuation in your interest rate will significantly affect the overall interest rate outgo. There are two types of interest rates for Loan Against Property: Floating interest rates and Fixed interest rates. Floating interest rates fluctuate with market governed by RBI while fixed interest rates will be stable throughout the loan tenure.

Also Read: Understanding Interest Rates: Floating vs. Semi-Fixed vs. Fixed

In India, Loan Against Property interest rates are offered between 8% to 12% based on borrower’s profile, employment history, credit score and several other factors to arrive at a final interest rate. Securing a low-interest rate Loan Against Property empowers borrowers with lower monthly payment and reduced total cost. This enables flexibility for long-term financial planning, eventually leading borrowers to close the loan sooner and cost effectively. You can also use Loan Against Property EMI calculator to plan your finances before you apply for a loan.

Factors That Affect Loan Against Property Interest Rate

There are several factors that lenders consider before offering you a final interest rate on Loan Against Property.

Credit Score:

Lenders evaluate your credit score to understand your repayment capacity. If you have been paying your credit card bills on time, your credit score will be strong and can weigh on securing you a lower interest rate.

Property Type and Location:

High value assets in a prime location are always considered a safe collateral, potentially securing lower interest rates. However, having property in rural or less developed areas might attract higher interest rates.

Loan Tenure:

Short loan tenures for Loan Against Property reduce long-term risk for lenders leading them to offer lower interest rates while longer loan tenures raise uncertainty.

Income and Employment Stability:

For a lender it is important to see borrower’s consistent cash flow. If there is a gap in borrower’s employment history or quick jumps from one role to another, it indicates inconsistency in cash flow, attracting higher interest rates.

Loan-to-Value Ratio:

Loan-to-Value Ratio or LTV compares the loan to your property value. The higher the LTV, the greater risk for lenders, encouraging them to offer high interest rates.

Also Read: What is Loan-to-Value Ratio in a Loan Against Property?

RBI Repo Rate:

Lenders adjust Loan Against Property interest rates based on benchmark costs set by RBI. If RBI drops its repo rate, the overall interest in the market will fall accordingly. This is very beneficial for those who opted for floating interest rates.

Fixed Obligation to Income Ratio:

Fixed Obligation to Income Ratio or FOIR is the ratio of how much part of your income is committed to your existing debts. Lower FOIR would indicate higher paying capacity leading to secure lower interest rates on your Loan Against Property.

Age:

Younger borrowers usually pose lower risk for longer tenure, so lenders might offer better interest rates compared to individuals nearing their retirement age which indicates income instability encouraging higher interest rates.

How to Lower your Loan Against Property Interest Rates

Improve your credit score:

One of the ways to lower your interest rate is by improving interest rates by paying your bills on time, keeping credit utilisation low and maintaining a clean record. An ideal score that will help you secure lower interest rates is generally 700 and above.

Negotiate interest rates with lenders:

Use your financial discipline reflecting in your credit score to negotiate interest rates with lenders. Always carry RBI’s guidelines of nil foreclosure charges if you are using Loan Against Property for business purposes to support your negotiation statement.

Opt for shorter loan tenure:

Short loan tenure does not expose lenders to high risk; you can always plan repayments and save on your interest rates.

Consider Balance Transfer Calculator:

Many borrowers prefer transferring their outstanding balance to a new lender as it might lower interest rates and suit your financial goals.

Using Balance Transfer Calculator:

Before transferring your outstanding balance to a new lender, you can use Balance Transfer Calculator to understand how much savings you could do if you transfer and also compare various lenders’ offering to arrive that your suitable plan.

Strategise around seasons:

Lenders offer lower interest rates or discounts during financial year end and festival season, which could be the best time to apply for a Loan Against Property and save on your interests.

Explore co-applicant benefits:

Having a co-applicant with a strong financial background can improve eligibility and negotiation with the lender. Some lenders also lower your interest rates if you have a woman co-applicant.

Make Timely EMI payments:

Consistent and timely payments show financial discipline, which can place you in stronger position for renegotiation or refinancing.

Apply now for a Loan Against Property.

FAQs

Q.1. Can I negotiate a lower interest rate after taking a Loan Against Property?

A. Yes, you can negotiate a lower interest rate after taking Loan Against Property, provided you are making repayments on time, present competing offers from other lenders and have a strong credit score reflecting your financial discipline. These factors might vary and may or may not be always favorable.

Q.2. How frequently can I request an interest rate reduction on my Loan Against Property?

A. You can request an interest rate reduction in specific intervals during your loan tenure, depending on lenders and their policies.

Q.3. Are there fees involved in transferring my Loan Against Property to another lender?

A. Yes, there are fees involved in transferring my Loan Against Property to another lender.

Q.4. Can a balance transfer be done multiple times?

A. Yes, you can do a balance transfer multiple times as long as you meet the preferred lender’s eligibility.

Q.5. How long does the loan balance transfer process typically take?

A. The process can take from few days to weeks, depending on internal approvals.

Q.6. Does having a co-applicant help in reducing the Loan Against Property interest rate?

A. Yes, it does. If your co-applicant has a strong credit score and shows repayment capacity, it will help to negotiate with the lender.

Q.7. How does my credit score affect the interest rate I get?

A. The interest rate you are offered is based on your credit score. If you have strong credit score, typically above 720, you can secure low interest rates.

Q.8. Will prepaying my loan reduce the interest rate?

A. Yes, prepaying your loan will reduce the interest rate, as it will reduce the principal amount eventually leading to reduction in your total interest payable during loan period.

Q.9. What is the difference between fixed and floating Loan Against Property interest rates?

A. In fixed interest rates, the rate remains same for the whole loan period. Your EMI will not change and hence good if you prefer steady financial planning. On the other hand, in floating interest rates, the rate will fluctuate

Q.10. Are there any special Loan Against Property offers during festive seasons I can avail of?

A. Yes, many lenders offer special Loan Against Property interest rates during festive seasons.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com