Home loan vs Loan Agianst Property

Home Loan vs Loan Against Property - Online Comparison

Not everyone has the same level of knowledge about everything. And to expect the same level of understanding about finance would be a crime. Similarly, there are several financial terms that create confusion for people such as Home Loan and Loan Against Property. To clear the clutter and make things simpler, we have curated this blog discussing the major differences between Home Loan vs Loan Against Property. 

What Is Home Loan?

When you opt for a Home loan; you are taking a loan for buying a home or buying land to construct your home. A Home Loan is considered as a secured loan provided by banks and housing finance. For a Home Loan, you have to pay the down payment amount. Alongside, as a borrower, you have to pay monthly EMIs to the lender till the end of tenure. If you fail to pay the EMI or any default in the repayment, a lender will have the right over the property to recover the loss.

What Is Loan Against Property?

As the name suggests, it is a loan against your property. As a borrower, you take on your property. In the scenario, you keep your property paper with the lender for the loan amount. The loan amount is finalized as per the current market price of the property. In case the borrower defaults in EMIs, a lender can take possession and sell the property to recover the loss. 

Key differences between Home Loan and Loan Against Property:

  • Usage

With other major differences, usage is one of the primary differentiators between Home Loan and LAP (Loan against the property). In the case of home loan, a borrower can use the loan amount or borrowed amount only for the purpose of buying a home or to buy a plot for the home construction. 

  • Interest rate

There is a slight difference in the interest rates of Home Loan and Loan Against Property. The default rates for loan against property are much higher as compared to Home Loan, which results in higher interest rates. On the other hand, a Home Loan is supported by the government and RBI to provide affordable housing with lesser interest rates.  

  • Tenure 

Generally, lenders provide loans against property for a maximum of 15 years. Whereas, for a Home Loan you get a loan for 20 years and sometimes a maximum of 30 years. 

  • Documentation process

The documentation process for a Home Loan is comparatively simple and easy. It takes 15 days for loan sanction and approval from the lender. In the case of a Loan against Property, the documentation process is slightly longer as the lender needs to do background verification of the borrower along with the property valuation. 

  • Option for top up 

A loan against property has a top-up option which means you can get an additional loan on the existing loan. Moreover, as a borrower, you have flexibility on the loan amount and usage of the loan. Whereas Home Loan doesn’t have such freedom and flexibility of usage. Only in cases where lenders or bank allows the borrower with further assessment. 

  • Tax benefit

Home loan offers tax exemption under section 25 for the interest paid and for the principal amount under section 80C. There are no tax benefits and exemptions for Loan Against Property.  

Home Loan Vs Loan Against Property

Key differences

Home Loan

Loan against property

Usage

There are certain limitations in terms of usage of the loan amount. It can’t be used for personal purposes other than buying a home or buying land/plot for the construction of a home

There is no limitation on the usage of the loan amount. It can be used for personal purposes depending on the need and requirements of the borrower.

Interest rate

9.55% to 16%

9.25%

Processing Fees

One-time processing fee up to 2% plus taxes

One-time processing fee up to 2% plus taxes

Tenure

30 years

5-15 years

Documentation process

Easy and simple takes 15 days to complete

Comparatively longer procedure as it involves property valuation and background verification of the borrower

Option for top up

No top-up option available for a home loan

A borrower can avail for a top-up option over the existing loan

Tax benefit

For the interest rate, you can avail tax benefits under section 24

For the actual principal amount, you can avail tax exemption under section 80C

There is no tax exemption for a loan on property.

 

Conclusion

At times both the terms home loan and loan against the property are used interchangeably which creates confusion for people. Knowingly or unknowingly in day-to-day life, even the people who are aware about the terms make mistakes while using the terms home loan and loan against property. You can easily apply for both a home loan and a loan against property with Poonawalla Fincorp. We at Poonawalla Fincorp offer the best-in-class services for individuals who are looking for financial assistance. 

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