Banks and financial institutions offer loans for almost anything. If you wish to buy a car or a two-wheeler, you have auto loans. Similarly, a housing loan enables you to purchase a house. A business loan allows people to do productive businesses. A consumer-durable loan lets you buy furniture and other items that you require for a decent living. Loan Against Property and personal loan help people meet their requirements like marriage, education of children, medical expenses, and so on.
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.
Loan Against Property Interest Rates Comparison
| Banks/Loan Product/Interest Rate Range | Housing Loan Interest Rate Range | Loan Against Property Interest Rate Range | Personal Loan Interest Rate Range |
| SBI | Starts from 7.90% | Starts from 9.30% | Starts from 10.50% |
| ICICI Bank | Starts from 8.25% | Starts from 10.20% | Starts from 11.25% |
| HDFC Bank | Starts from 8% | Starts from 9.40% | Starts from 10.75% |
| Axis Bank | Starts from 8.55% | Starts from 11.25% | Starts from 12% |
| Bank of Baroda | Starts from 8.15% | Starts from 9.35% | Starts from 11.40% |
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.
Home Loan Interest Rate Vs. Loan Against Property Interest Rate
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.
Loan Against Property Interest Rate Vs. Personal Loan Interest Rate
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.
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 February 10, 2020, is 7.85%. The interest rate on the Loan Against Property depends on this rate.
| When more than 50% of the Net Monthly Income is from salary | ||
| Loan Amount Slab | Rate of Interest | Effective Rate of Interest |
| Up to 1 Crore | MCLR-1Y + 1.45% | 9.30% |
| More than 1 Crore and up to 2 Crores | MCLY-1Y + 2.10% | 9.95% |
| More than 2 Crores up to 7.50 Crores | MCLT-1Y + 2.50% | 10.35% |
| When business/profession or rental income comprises more than 50% of the net monthly income | ||
| Loan Amount Slab | Rate of Interest | Effective Rate of Interest |
| Up to 1 Crore | MCLR-1Y + 2.10% | 9.95% |
| More than 1 Crore and up to 2 Crores | MCLY-1Y + 2.60% | 10.45% |
| More than 2 Crores up to 7.50 Crores | MCLT-1Y + 3.00% | 10.85% |
ICICI Bank
ICICI Bank refers to the RBI Repo Rate for determining the interest rate on loans against property.
The Repo Rate as on date is 5.15%.
| Salaried and Self-Employed Borrower | ||
| Loan Amount Slab | Priority Sector Lending Rate | Non-priority Sector Lending Rate |
| Up to 50 Lakhs | RR + 5.15% = 10.30% | RR + 5.25% = 10.40% |
| Between 50 Lakhs and 1 Crore | RR + 5.10% = 10.25% | RR + 5.20% = 10.35% |
| More than 1 Crore | RR + 5.05% = 10.20% | RR + 5.15% = 10.30% |
HDFC Ltd
HDFC Ltd has its Retail Prime Lending Rate (RPLR) for non-housing purposes. The RPLR (Non-Housing) is 9.90% as on date.
HDFC Ltd 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.
| Salaried Individuals and Self-employed persons | ||
| Loan Slab | Adjustable-Rate | TruFixed Loan – 2-year tenure |
| Self-occupied Residential – Up to 49.99 Lakhs | 9.40% to 10.40% | 10% to 11% |
| Self-occupied Residential – 50 Lakhs and above | 9.40% to 10.40% | 9.80% to 10.80% |
| Non-self-occupied Residential – up to 49.99 Lakhs | 9.65% to 10.65% | 10.25% to 11.25% |
| Non-self-occupied Residential – 50 Lakhs and above | 9.65% to 10.65% | 10% to 11% |
| Commercial property – up to 49.99 Lakhs | 9.65% to 11.50% | 10.25% to 12.05% |
| Commercial Property – 50 Lakhs and above | 9.65% to 11.50% | 10% to 11.90% |
Axis Bank
Axis Bank refers to the RBI repo rate when determining the rate of interest on loans against property.
The RBI Repo rate is 5.15%.
Axis Bank offers term loans and overdraft facility on loans against property. The rates of interest are different for each facility.
| Type of Loan | Rate of Interest spread | The effective rate of interest |
| Term Loans – Floating | RR + 6.10% to RR + 6.60% | 11.25% to 11.75% |
| Overdraft – Floating | RR + 7.10% to RR + 7.20% | 12.25% to 12.35% |
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 5.15%. 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.
| For Individual borrowers – depends on CIBIL score | ||
| Amount Slab | Tenure up to 120 months | Above 120 and up to 180 months |
| Up to 5 Crores | BRLLR + SP + (0.95% to 3.50%) = 9.35% to 12.35% | BRLLR + SP + (1.20% to 3.75%) = 9.60% to 12.15% |
| More than 5 Crores | BRLLR + SP + (2.95% to 5.50%) = 11.35% to 13.90% | BRLLR + SP + (3.20% to 5.75%) = 11.60% to 14.15% |
| For Non-individual borrowers | ||||
| Tenure up to 120 months | Above 120 and up to 180 months | |||
| Margin | Up to 5 Crores | Above 5 Crores | Up to 5 Crores | Above 5 Crores |
| Above 50% | BRLLR + SP + 1.45% = 9.85% | BRLLR + SP + 3.45% = 11.85% | BRLLR + SP + 1.70% = 10.10% | BRLLR + SP + 3.70% = 12.10% |
| Up to 50% | BRLLR + SP + 1.70% = 10.10% | BRLLR + SP + 3.70% = 12.10% | BRLLR + SP + 1.95% = 10.35% | BRLLR + SP + 3.95% = 12.35% |
Loan against property is a secured loan and eligibility criteria are easy to meet. You can apply for high-ticket LAPs for education, business or personal reasons .
The interest rate for a loan against property starts from 7.25% p.a. You get a higher loan amount at affordable EMI. Unlike personal loans, property loans cost less and offer.
A loan against property offers you maximum liquidity value for your property. You can avail of financing for up to 15 years. By choosing a long-tenure property loan, you get lower EMI .
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