When you apply for a Loan Against Property, a primary factor that influences the interest rate offered to you is your credit score. While a LAP is secured against an asset, such as your house or commercial property, your creditworthiness still plays a significant role in determining the Loan terms. Let us understand how your credit score impacts the interest rates on LAP:

High credit scores

You are considered a low-risk borrower if your credit score is 750 or higher. This means lenders are confident in your ability to repay the Loan timely based on your past credit history. As a result, they may offer you a Loan at a competitive interest rate. A high score indicates that you have consistently managed credit responsibly.

Average credit scores

You are considered a moderate-risk borrower if your credit score falls between 650 and 749. While you are still eligible for a Loan, your Loan Against Property Interest rate is likely higher than that offered to someone with an excellent score. A score in this range indicates that while you have managed credit adequately, there may be some errors in your credit history.

Low credit scores

Lenders may see you as a high-risk borrower if your score is below 650. It could be due to a history of missed payments, defaults, or other negative marks on your credit report. Lenders may still approve your application, but you will likely face a significantly higher interest rate to compensate for the increased risk.

Other factors that impact LAP interest rates

While your credit score is an important factor, it is not the only one that influences the interest rate on a LAP. Some other factors include:

• The percentage of your property's value you can borrow. Borrowing a smaller amount compared to your property's value may result in a better interest rate.
• Lenders assess your income and employment stability. A stable financial profile may lead to better rates.

Tips to improve your credit score

If you plan to apply for a LAP and want to secure the best interest rate, improving your credit score is essential. Here are tips you can follow:

• Timely bill payments are crucial for maintaining a good credit score. Set up automatic payments or reminders to avoid late fees.
• Lower your Credit Card balances and try to pay off high-interest Loans. A lower credit utilisation ratio can positively impact your score.
• Sometimes, credit reports include errors or outdated information. Regularly check your report to spot mistakes and get them corrected for lower LAP Interest rates.

Conclusion

Your credit score helps you to secure a LAP and influences the interest rate you are offered. A higher score leads to better terms, including lower interest rates, while a lower score might lead to higher interest rates or Loan rejection.