A loan against property (LAP) is a great source of funds for any substantial financial requirements. It has a lower interest rate compared to an unsecured loan as given against collateral.
Besides, this financing option is also beneficial for salaried employees as well. For instance, individuals can avail loan against property tax benefits and save on their taxable income when used for some specific purposes like home renovation and business.
The tax benefits are also available on the amount paid towards interest. However, to avail the best interest rates, individuals also need to know the factors that impact them.
Factors affecting interest rate of LAP for an employee
Key factors affecting loan against property interest rates are:
- Credit Score
CIBIL score is one of the most determining factors to influence the credit eligibility of applicants. Nevertheless, a credit score above 750 can ensure a lower interest rate on loan against property.
- Applicant’s profile
Following factors of applicant’s profile influences on interest rate:
- Income – As a salaried employee has a fixed income, therefore, has a lower risk of default. Hence, interest rate on LAP for an employee is lower than for a businessman.
- Employment history – The employee should have been in employment for more than 3 years. However, the lender checks the stability of the job before approving a loan.
- Debt-to-income ratio – Low debt and high-income ratio translates into an affordable interest rate.
- Age – The age of the borrower should be between 20 – 60 years.
- Status of the Property
Following factors of the property determine the LAP interest rate for an employee:
- Location – Prime location with an array of modern amenities will incur a good commercial value of the property. Usually, 65% to 70% of the property value is given as LAP.
- Condition – Pristine condition of the property proffers higher resale value; therefore, ensures better interest rate than a rundown condition property.
- Age – New property has better value and interest rate than the old property.
- Utility of the building – Residential property promises a better loan against property interest rate for an employee than a commercial property.
- Tenor of the loan
A longer repayment tenor incurs higher interest than a shorter one. However, if a lender perceives short tenor as risky, it may charge a higher interest rate.
How can an employee get the best interest rate against LAP?
An employee can get the best interest rate against a loan against property by abiding following points:
- Improve credit score
Individuals should pay bills of credit cards dues on time and never delay on repayment. Try to use less than 30% of the available credit limit. Try to limit hard inquiries. Adopt these practices to improve the score.
- Maintain good employment history
Intending borrowers also should not change the job frequently. Lenders reward borrowers with stable monthly income with a competitive interest rate. Besides, individuals should also mention additional income sources to qualify for better rates.
- Maintain a good debt-to-income ratio
Ideally, a FOIR below 40% will ensure a favourable interest rate and higher chances of getting loan approval.
- Research on best offers by various lenders
One should check with various lenders and research for competitive rates. Calculate the interest payable using EMI calculator and adjust the tenor accordingly.
One should also compare floating interest rates vs. fixed interest rates and decide what the better option is. Usually, fixed interest rates are slightly higher than floating rates.
To maximise the benefit of a loan against property, individuals can check their pre-approved offers by sharing essential contact details and names. These offers are applicable to a host of financial products like LAP, home loans, etc. These also expedite and simplify loan processing.
- Right documentation
When applying for the loan, provide all correct information, and the right documents as the interest rate and approval depend on an evaluation.
- Add a co-applicant
An employee applying for LAP can add a co-applicant in the same account to improve the eligibility.
- Offer a valuable property
The condition of the property should be good enough to get the best interest rate. Therefore, evaluate the market value before applying for LAP.
There is no restriction on loan against property, and thus individuals can utilise the funds for personal and professional purposes.
There are several factors that affect the interest rate of LAP; therefore, an employee should be very vigilant and opt for the best deal after analysing. Apart from that, income tax benefits on loan against property ensure further savings on repayment.