Loan Against Property Interest Rate

A Loan Against Property is a "No Questions Asked" personal loan with security. It is similar to a personal loan in many respects but has its distinct flavour.

The key features of a Loan Against Property are as follows:

• A Loan Against Property is a collateral-backed personal loan. Banks and other institutions offer this product against the security of either residential or commercial property.
• The purpose of the loan can be to meet personal expenses like medical needs, marriage expenses, education of family members, tours and travel, home repairs, and so on.
• Business entities or self-employed individuals can avail this facility to meet urgent day-to-day expenses like working capital requirements. This loan is also available for acquiring a long-term capital asset for business expansion.
• As it is a secured advance for the bank, the quantum of loan is higher than the personal loan. A personal loan is a clean unsecured loan, usually against your salary and other income.
• Though the purpose of the personal loan and the Loan Against Property is same, the characterisation of both is different.
• Compared to the personal loan, the Loan Against Property is a safer proposition for the bank. Hence, the banks offer relaxations by not insisting the borrowers to have a CIBIL score of 750 and above. Many banks provide loans against property to borrowers with CIBIL rating between 650 and 750 also.
• The rates of interest charged by the lending institutions belong to the middle tier. They are not as low as the home loan interest, and not as high as the personal loan and credit card interest.
• The process of sanctioning Loan Against Property is a transparent one. The eligibility criteria are crisp and defined clearly. Banks offer eligibility calculators on their websites to determine the Eligibility for Loan Against Property.

If we classify the bank loan interest rates into three categories like 'Low, Medium, and High,' the interest rate for the Loan Against Property will fall in the Medium category. There are specific reasons why it classifies under this category. We shall discuss the logic, but in the meanwhile, this interest rate comparison should help you understand the classification.

Inference

• Home loans have the lowest rates of interest amongst the three products discussed above
• The interest rate range for the Loan Against Property is higher than that of the home loan but lower than the personal loan.
• The Personal Loan Rates of Interest are the highest among the three products.

Below are the rates of interest on loan against the property of some of the top banks in India:

State Bank of India

State Bank of India refers to the MCLR structure while defining the interest rate on loans against property.

The MCLR-1Y for State Bank of India with effect from November 10, 2022, is 10.00%. The interest rate on the Loan Against Property depends on this rate.

ICICI Bank

ICICI Bank refers to the RBI Repo Rate for determining the interest rate on loans against property.

For Salaried

For Self-Employed

HDFC Bank

HDFC Bank has its Retail Prime Lending Rate (RPLR) for non-housing purposes. The RPLR (Non-Housing) is 9.50% as on date.

HDFC Bank offers floating and fixed rates of interest. The floating rate is the Adjustable Rate Loan, whereas the fixed-rate is the TruFixed loan, where the rate of interest remains fixed for two years. Subsequently, it converts to a floating rate.

Axis Bank

Axis Bank refers to the RBI repo rate when determining the rate of interest on loans against property.

Axis Bank offers term loans and overdraft facility on loans against property. The rates of interest are different for each facility.

Bank of Baroda

Bank of Baroda refers to the RBI repo rate as its base for deciding the BRLLR. The Loan Against Property depends on the BRLLR.

The Repo Rate as on date is 5.90%. Bank of Baroda adds a Mark-up rate of 3% to arrive at the BRLLR. There is a concept of an SP rate of 0.25%, as well.

In all the five cases that we have discussed above, the Home Loan Rates of Interest are more than 1% point lower than the rates for Loan Against Property.

• Both the loans are similar because the security offered to the bank is the same, equitable mortgage of residential property.
• However, the purpose of the loan is different. In the case of the housing loan, the use of the loan is to purchase or construct your house. It is a productive purpose and involves the creation of an asset. As the purpose of the loan is well-defined, the lending institutions can ascertain the end-use of funds. Therefore, the rate of interest is the lowest.
• In the case of Loan Against Property, the purpose of the loan is to meet business and individual needs. The end-use of the funds might not be for productive purposes because there is no creation of an asset. It can be for personal use. Determining the end-use of funds is not easily verifiable. However, there is collateral available to the banks. Hence, the rate of interest is in the middle range.

• Both the loans are similar because the purpose of the loan is the same, to meet individual and business requirements.
• The personal loan is clean. Banks do not ask for any collateral from the borrower. The income, repaying capacity, and credit ratings are the three essential requirements for a personal loan. As there is no security for the loan, the risk perception is high. Hence, the rates of interest are the highest.
• A Loan Against Property is a secured personal loan. Banks have the cushion to rely on in the case of a default from the borrower. Banks usually do not finance more than 65% (90% in special cases) of the value of the property as Loan Against Property. Therefore, the security cover available to the banks is more than 100%. Thus, the rate of interest is lower than that of a personal loan.

If you look at the interest rate structure of the banks, you find that the individual interest rate falls in a range. It implies that the rate of interest is not the same for all borrowers.

Here are the factors that determine the interest rate for individual borrowers:

• The loan amount: Generally, you have different loan slabs with the rate of interest being different for each slab. The lower the loan amount, the lower is the interest rate.
• The loan tenure: At times, you find loans for short tenures having a lower rate of interest, when compared to the loans with extended tenures.
• The occupation of the borrower: Salaried employees enjoy an advantage of lower interest rates as compared to self-employed borrowers. The reason is the stability and certainty of the income.
• The gender of the borrower: Some banks and lenders offer a concession to women borrowers.
• The credit rating of the borrower: The lower the credit rating, the higher is the rate of interest, and vice versa.
• The nature of the property: At times, you find that loans against residential properties have a lower rate when compared to loans against commercial property.