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Factors Affecting Interest Rate on Loan Against Property

A loan against property may be used to meet a variety of financial needs. It can help you with anything, including starting a new business or buying a new house. Understanding the variables that affect the loan against property interest rate is crucial. If your property is free of debts or mortgages, borrowing money against it at a fair interest rate to pay for various expenses is a very beneficial solution for you.  An individual can borrow between 40 and 70 percent of a property’s market value, depending on the type of property. Both residential and commercial properties may be used as collateral for loans. This can be done by providing the registration documents and other necessary documentation.

The interest rate is the most critical part of any loan. A “property loan” has a separate interest rate range whereas house loans are available in the 6.7 to 14% range.

Here are some more factors that may have an effect on the interest rate for a loan against property.

Credit score

Lenders can determine your reliability based on the three-digit value of your credit score, which runs from 300 to 900. As your credit score increases, your risk ratio declines. To get a good interest rate, a credit score of at least 700 is preferred.

The borrower’s credit score is important in deciding whether they qualify for a loan and what interest rate will be applied to it. For loans backed by real estate in the market, a score of 650 or more is considered sufficient to acquire competitive rates. Consumers with low credit scores are approved for loans at higher interest rates because lenders consider them as high-risk customers.

In some cases, having a bad credit score may also cause loan applications to be denied.

Financial profile of the applicant

The borrower’s profile affects both loan against property eligibility and the rate of interest. Lenders evaluate your application while taking into account various factors. This include your age, type of employment, source of income, type of residence, prior borrowing history, and other factors. If a senior is approaching retirement age, they might not be eligible for a loan. If they are, the interest rate will be much higher. They might be approved for a loan with a shorter term, but it would mean paying a much higher EMI each month. On loans against property, a person who makes less money will also pay more interest because they provide a higher default risk to the lender.

Type of property

Lenders give the kind of property a loan has been applied for careful consideration. Surveyors working for the lenders examine the property. It is to ascertain its type (whether residential or commercial), age, location, and market value. Based on the surveyors’ reports, the lenders decide on the maximum loan amount that can be approved, the loan’s repayment period, and the interest rate that can be applied to the borrower. For commercial and residential properties, different loan amounts and interest rates apply. Old and worn-out buildings will have lower property values, which can cause loans to be approved for smaller amounts and at higher interest rates.

Loan tenure

The rate of interest that will be charged on the loan is also based on how long it will be applied to it. The offered interest rate is lower because the repayment terms for these loans are longer—roughly 15-20 years. In order to pay off the loan more quickly, the borrower has the option of selecting a shorter term. But in these circumstances, the lender typically charges a higher interest rate on the loans against property. 

Tax benefits

The inability to claim tax benefits is among the most crucial aspects to take into account when making an application for a loan against property. A borrower of a loan against property is not eligible to receive any government tax benefits, in contrast to borrowers of other loans. Other loans such as housing or education loans, allow them to claim tax advantages. Taxes must be paid by the borrower on the money used to pay back the loan. Because of the potential tax benefits, customers are more drawn to home loans and student loans than other types of loans, even though their interest rates are greater.


The interest rate, loan period, processing fee, and other elements of loans against properties offered by various lenders may vary. It greatly depends on the property, credit profile, and risk tolerance of the applicant.  It is crucial to evaluate loan offers from as many lenders as you can before selecting one, as a result.


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