Factors That Determine The LAP Loan Interest Rate

You can get a loan against property from a number of banks and non-banking financial companies. This loan assists you in purchasing a new home to build a new business. This loan is sanctioned against property as collateral. The lender decides the loan amount depending on the property’s market value. You can enjoy many benefits from this loan, such as tax benefits on interest payments. The loan against property tax benefit allows you to get a tax deduction when you use your loan money for business purposes or to purchase a residential property.

You can decide the loan term based on your ability to repay the loan. Many factors influence the amount of money you can borrow and its interest rate. If you plan to get a loan against property or a lap loan, you should understand the factors determining the lap loan interest rate.

• Age of the applicant

The applicant’s age is essential, as it determines the loan amount, tenure, interest rate, and approval. If you are young, you can get a higher loan amount and a more extended repayment tenure of the lap loan. However, you may only get a low-interest rate if you are young and have a long credit history. Hence, you should build your credit history and maintain a good credit score to get a low interest on your loan against your property.

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• Borrower’s income level

You may not need a high-income source to get this loan as the funds are secured by a high-value property or real estate asset. However, you must have an average income if you want a low-interest rate and a loan against property tax benefits. You will have to repay your loan with high interest if you don’t have any income or have a low-income level.

• Type of property

Property type also plays a vital role in deciding the loan amount and interest rate. Generally, two kinds of real estate properties are available, including residential and commercial. The residential property can consist of apartments, houses, and residential land. In contrast, commercial property can consist of factories, office premises, and manufacturing units. If the property you want to mortgage is residential, you may not get a high loan amount, but the processing time will be short. However, if you are mortgaging your commercial property, you can get a high value and a low-interest rate.

• Terms with the lender

Another factor in deciding the lap loan interest rate is your relationship with your lender. If you are a regular customer and have a long relationship with your lender, you can avail many benefits when applying for a loan against property. If you have a good credit score, you are eligible for a lower interest rate, and if you know the lender, you can get an additional discount. Your lender may also verify your loan application and disburse money more quickly.

• Loan tenure

Every loan has a tenure in which you have to repay your loan. The repayment tenure also affects the interest rate. The shorter the tenure for the loan, the lower the interest rate. Moreover, the longer the period, the higher the interest rate. You should choose the loan tenure after calculating the EMI and ensure that EMI fits your monthly expenses. However, it is better to choose lengthier tenures as it reduces the financial pressure from your pocket.

• Property’s Location

The property’s location impacts your property’s value, which decides how much loan you can get from the lender. Suppose your property is in a posh area with all the basic amenities within a radius of 1 kilometer. In that case, the lender will offer you a high loan value with a lower interest rate. However, the lender may not approve this loan if you are mortgaging a property in an undeveloped or rural area.

• Macroeconomic factors

External factors like inflation, RBI monetary policy, and economic growth rate influence the lap loan interest rate. If inflation rises, the bank will lend money with higher interest rates until the RBI changes its monetary policy.

• Type of interest rate

What type of interest rate you choose is critical in selecting a lower interest rate. When applying for a lap loan, you can choose between fluctuating and fixed interest rates. The fluctuating or floating interest rates vary throughout the tenure as they are based on the RBI’s benchmark. On the other hand, the lender determines the fixed interest rate for a loan. The fluctuating rates are usually lower than fixed interest rates.

Conclusion

This secured type of loan has many purposes that individuals can obtain from any finance institute and lending agency. The main loan against property tax benefit is that their interest rates are comparatively lower than other types of loan. Learn and understand the factors that influence the interest rate and loan amount to improve your chances of a low-interest rate on your lap loan.