4 Factors Determining Property Loan Interest Rate

The interest rate is a key figure determining your liabilities arising from a loan. If the interest rate is high, you have to shell out more every month, and if the interest rate is low, your net liability reduces considerably. 

A loan against property, also known as a property loan, is one of the most popular loan options in India. A property loan allows you to enjoy uninterrupted property ownership while getting funds to fulfill urgent financial needs.

Property loan interest rates go from 7.99% to 11%. The 3% difference between the lowest and highest rates can substantially increase or decrease your loan bills. This article discusses the top-4 factors determining interest rates and ways to get the best rate.    

4 Factors Determining Property Loan Interest Rate 

Credit Score

The credit score plays a massive role in determining the interest rate. Besides determining the interest rate, the credit score also influences property loan eligibility. 

A credit score is assigned to each Indian citizen with a credit history by credit bureaus like CIBIL, Experian, Equifax, and CRIF High Marks.

The credit score usually starts from 300 and reaches up to 900. However, the credit score may sometimes go below 300 to sub-zero levels. The score depends on the borrower’s credit mix, repayment history, credit duration, etc. Indian lenders prefer borrowers with a 750+ credit score.

So, if you want the best interest rate for your property loan, display a credit score of 750 and above. A lower score increases the risks associated with loan recovery, so lenders increase the rate to minimize the risks.

Borrower’s Financial Profile

The borrower’s financial profile is another major factor influencing the interest rate. The borrower’s profile includes age, income source, net monthly income, savings, etc. Let’s understand each metric briefly:

  • Age – The lower your age, the more time you can get to repay the loan. So, lenders may reduce the interest rate. Conversely, if your age is near the maximum age (60 on maturity), lenders may get cautious.
  • Income Source – Salaried professionals generally get more discounts on property loan rates than self-employed professionals since the former’s income is usually well-defined and fixed.
  • Net Monthly Income – The net monthly income determines your financial position. If your loan EMI comprises a small fraction of your net monthly income, the lender may offer you the lowest property loan interest rate since the repayment is almost guaranteed.
  • Savings – If your income is not as per the lender’s expectations, you may show them your savings account statement to prove that you have enough money to repay the loan EMI at least for one(1) year. 

The Mortgaged Property

The property a borrower wishes to pledge is also vital in determining the interest rate for your property loan. Lenders generally evaluate the to-be-mortgaged property’s age, location, and condition. 

For instance, commercial property loan rates are different from residential loan rates. Also, the interest rate might be lower if your property has a high resale value or is situated in a prime area. Moreover, if your property is worn-out or dilapidated, your lender may increase the rate.

So, if you want the best rates, it is wise to repair or paint your property before applying for a loan.

Loan Repayment Tenor

If you opt for an extended loan term, your EMI will be low. This might prompt the lender to offer you a discounted rate since the burden on your pocket will be minimal. 

In contrast, if you choose a shorter loan term, the EMI will increase, thus increasing your financial liability. And lenders generally increase the interest rate on short-term property loans.

Hence, while deciding on the property loan repayment tenor, consider your financial capacity and choose an appropriate tenor.


The four factors discussed in this article can help you get the best property loan interest rates and save a considerable amount every month. Compare the lenders and choose a lender offering affordable rates to fulfill your financial goals conveniently.

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