How does your credit score affect loan against property eligibility?

A loan against property is a mode of finance where you get a certain amount secured against a property you own. This property could be a piece of land, a flat, a house, rented property, etc., and the amount you receive mostly depends on the market value of the property.

Loan against property, being a secured loan, generally has lower interest rates than unsecured loans like personal loans with a high loan amount. The Bajaj Finserv Loan Against Property, for example, offers you a loan amount up to Rs. 10.50 crore* if you are self-employed, and up to Rs. 10.50 crore* if you’re a salaried individual, at affordable interest rates. Also, with pre-approved offers by Bajaj Finserv, there are no queues, no forms, and no details required. Everything is already done for you.

Apart from other factors such as the loan amount, market worth of the property, and loan tenor, among others, your credit score plays a critical role in determining the eligibility for the loan and its rate of interest. The higher the score, the better are the chances of procuring the loan at competitive interest rates.

Why is your credit score so important?

Your credit score measures your creditworthiness and reflects your ability to repay the loan. It is a benchmark on which your risk of default is calculated. Therefore, if you have a poor credit score or a history of bankruptcy, it’s unlikely for you to be approved for any loan, including Loan Against Property.

Additional Read: List of documents needed to apply for a loan against property

Additionally, even if you are approved, you’ll be charged higher interest rates and possibly be given a lower loan amount.

Banks are strict about the credit score and are unlikely to approve your loan against property application if you have a poor credit score. On the other hand, non-banking financial institutions (NBFCs) though, are more flexible and may still provide substantial loan amounts, even with a poor credit score. However, the interest rates on loan against property may be higher.

Also, with a good credit score you can secure flexible tenors for loan repayment. A flexible tenor ensures you can pay off the loan at your own convenience without dipping into your savings and impinging other essential financial goals

Factors on which your credit score is calculated

Your credit score is calculated based on several factors, including:

• Payment history: This accounts for 35% of your score. It checks whether you’ve made your payments on time till date, which shows the possibility of you doing so in the future as well.
• Amount owed: This accounts for 30% of your credit score, and considers how much you owe. The higher your balance, the lower is your score.

Length of credit history: It accounts for 15% of your score, and the longer your credit history, the higher your score is.

Additional Read: How to Apply For a Loan Against Property

Note that opening too many new lines of credit at once can cause your credit score to take a dip. You can check your credit score for free once a year from each of India’s four credit information bureaus in India – TransUnion CIBIL, Equifax, High Mark, and Experian.

Thus, your credit score is an important eligibility check that you conduct before they approve your Loan Against Property. Therefore, get your score checked from all four bureaus and correct any incorrect information in your credit report before applying for the loan.