Loan against property has for many years been a popular credit option for availing credit by the property owners. This loan option enables the consumer to leverage the immovable asset in the form of property to avoid required funds without losing the ownership of the asset. The secured nature of this loan further allows lenders to offer lower interest rates apart from long tenure. As a Loan Against Property is usually a big-ticket loan, availing it lower interest cost assists borrowers in lowering their overall interest cost. And to avail of a loan against property at low-interest rates from lenders like SBI Loan against property and ICICI Loan against property, it becomes imperative to understand and follow some financial tips before submitting the loan application.
Financial tips to avail loan against property on low-interest rates
Ensure you are credit ready with a good credit score
Credit score’s role and importance in the approval of loans has been rising for many years. More and more lenders are factoring in applicant’s credit scores when evaluating loan eligibility. Some have even begun risk-based pricing, wherein lower interest rates are offered to those having good credit scores, whereas those with no or low credit scores are offered relatively higher interest rates, or their application may even get rejected. Hence, it becomes imperative for all prospective loan applicants to build and maintain a good credit score in order to enhance their loan against property eligibility when availing funds from options like SBI Loan against property and ICICI Loan against property.
To begin with, those having no credit score should work towards building it by adopting disciplined usage and repayment of credit cards. In contrast, those with low credit scores can improve it by adopting credit habits like timely repaying their credit card bills and/or EMIs in full, restricting credit utilization ratio under 30%, avoiding multiple loans or credit card applications within a short span, maintaining a healthy credit mix, periodically monitoring guaranteed/co-signed loan accounts and reviewing their credit report at regular intervals.
Compare interest rates of various lenders
As a loan against property involves lenders the option to recover outstanding loan amount from the auction of pledged property in case of loan default, such secured nature of options like ICICI Loan against property allows lenders to offer relatively lower rates on these loans. The rate would also depend on the lender’s credit risk assessment of the borrower’s credit profile, repayment capacity and pledged property’s characteristics like location, type and age of the property, etc. The loan against property rates may also vary depending on the loan amount and repayment tenure chosen. When taking SBI Loan against property, borrowers must remember to compare the rates and other factors like tenure, LTV ratio, amount, processing fees etc., before going ahead in order to strike the most suitable deal with the right lender.
Check existing customer relationships with lenders.
This is another important factor to keep in mind to low-interest avail rate on loan against property is to check the product features and offers provided by lenders with whom the individual has existing customer relationship, such as current, savings, salary or fixed/recurring deposit accounts, existing loans or credit cards. Many lenders tend to offer preferential terms, rates, etc., to existing customers, given that they already have the repayment history, KYC and other relevant information of that customer. Also, knowing the offer available from such lenders assists in comparing the same with other lenders and then make an informed choice most suitable for one’s financial requirements.
Satisfactorily qualifying for eligibility criterion.
Prospective applicants who are able to qualify for set eligibility criteria such as minimum income, age, credit score, repayment history and capacity, etc., tend to have higher chances of availing lower interest rate vis-a-vis who face difficulty in qualifying such eligibility criteria. For example, some lenders may offer lower interest rates to borrowers who have high income, low LTV ratio requirement, good credit score and live in a metro location. As those fulfilling all such criteria of eligibility for the lender tend to be looked at as more favourable according to the set credit risk assessment parameters, prospective applications for loans like ICICI Loan against property should scout and opt for the loan offer and lender whose eligibility criterion is satisfied to the most extent. This would enable the borrower to strike the right deal and boost the loan against property approval chances.
Go for a lower LTV ratio.
When availing loan against a property, a lender like SBI Loan against a property usually offers around 50-75% of the property’s cost as a loan against property. The higher the LTV ratio chosen, the higher the loan amount and EMI, hence higher the risk involved in big-ticket loans. Lenders may hesitate in offering a high LTV ratio to applicants, fearing the risk of default. Moreover, some lenders tend to offer lower rates for those opting for a lower LTV ratio, thus making it even more imperative for prospective borrowers to go for a lower LTV ratio, if possible. Opt for the LTV ratio whose corresponding loan amount as per pledged property is enough to satisfy the required funds. Never opt for a higher LTV ratio than required, as the higher the loan amount, the higher the overall interest cost as well.
Choose loan tenure wisely.
This is another important factor to keep in mind when availing loan against property with the aim to boost eligibility and approval chances is by choosing the repayment tenure according to repayment capacity. The loan’s repayment tenure is usually up to 15-20 years and plays a crucial role in determining the EMI outgo as well as overall loan cost. Opt for the tenure which suits the repayment capacity and whose corresponding EMI is most comfortable to repay without stressing financial health. Longer repayment tenure leads to lower EMIs, but the overall interest cost is higher in this case. In contrast, shorter repayment tenure involves higher EMIs, but overall lower interest outgo. If one goes for shorter tenure, an aggressive repayment schedule may harm financial health due to the high EMI amount outgo. Hence, one can go ahead with long repayment tenure for smaller EMIs, and make prepayments whenever possible to reduce overall interest cost.