People require loans for a variety of reasons. There are so many similar kinds of loans offered that it’s easy to get perplexed. A home loan and a loan against property (also known as a mortgage loan and LAP) are two examples of this. Some people confuse the two.
A home loan is a loan used to fund the purchase or building of a new home; the property must not already be owned by the loan applicant. A loan against property, on the other hand, is obtained by using an existing property as security for the loan, which can then be utilised for a variety of reasons. Here, we will discuss the difference between the two.
Quantum of loan
Buying a home is easily one of the most expensive purchases a person will make in his lifetime. Real estate is costly, and owning a home requires a substantial sum of money. To this end, home loans provide a bigger percentage of the property’s worth - up to 90 percent - than other types of loans. Loans against property, on the other hand, often provide 60-70 per cent of the property’s worth.
However, Bajaj Finserv's loan against property provides access to a larger loan amount, which is sufficient to meet the financial needs of most middle-class people. Salaried people can get up to ₹1 crore, while self-employed people can get up to ₹3.5 crore.
Interest rate
The interest rate on a home loan is lower than on a loan secured by real estate. This is because the government and the Reserve Bank of India (RBI) are working to make housing more affordable for everyone, which means that the margin requirement for a home loan is being reduced.
Tenure of loan
Both a home loan and a loan against property have a long term. Home loans typically have a 20-year repayment period. A loan against property is a high-value debt that takes a long time to repay. They normally come with a 15-year contract.
Flexible tenors are offered for loan against property from Bajaj Finserv, ranging from a maximum of 20 years for an individual to up to 18 years for self-employed individuals. Furthermore, full or partial pre-payment can be made at any time for a little fee.
Top up facility
Both a home loan and a loan against property have a long term. Home loans typically have a 20-year repayment period. A loan against property is a high-value debt that takes a long time to repay. They normally come with a 15-year contract.
Flexible tenors are offered for loan against property from Bajaj Finserv, ranging from a maximum of 20 years for an individual to up to 18 years for self-employed individuals. Furthermore, full or partial pre-payment can be made at any time for a little fee.
Taxation
A home loan is eligible for a tax deduction of up to ₹1.5 lakh on the principal amount under Section 80C of the Income Tax Act. However, unless the loan amount is utilised to fund a new dwelling under Section 24 of the IT Act, there are few tax benefits for a Loan Against Property.
Documentation
The documentation process for a home loan is straightforward. The verification and documentation process at banks might take up to 15 days. However, a loan against property can take a long time because banks must do a thorough inspection of the property, examine the property specifics, and determine property ownership, among other things.
Usage
As previously stated, a home loan should only be used to purchase a house, plot, or under-construction property. On the other hand, a loan against property can be utilised for anything, including marriage, automobile purchases, medical emergencies, debt consolidation, and business purposes. The reasons for taking out a loan against property might be several.
It goes without saying that your decision between a home loan and a loan against property is based on your needs. If you need money for a specific event, you can use a loan against property instead of a home loan. But it’s a good habit to choose carefully after taking into account every nuance of the loan and the process to apply for it.
