Home loan vs loan against property: which is better?

People tend to get confused with the financial terms when it comes to home loans. One of the common misconceptions is the difference between home loan and loan against property. In fact, these terms are used interchangeably frequently.

What is a home loan?

Home loans are usually taken to purchase a new house, plot or under construction property, etc. A house loan is also brought to repair or renovate a residential property. Home loans are the most popular products offered by banks and non-banking financial companies (NBFCs) and are unsecured. Lenders charge interest on the amount borrowed. You have to repay the loan amount in an equated monthly instalment (EMI) format. 

What is a loan against property?

Loan against property or LAP is a secured loan, i.e. you have to provide your property papers as security to acquire the amount. The amount depends on its type and in most cases the market value of the property, which is around 40 to 60 per cent. You can take a loan against property for any short-term or long-term purposes, such as funding a wedding, going for vacation, paying for hospital bills, financing a child's education and widening business operations.

The following pointers explain how home loans and loan against property serve different purposes:

  1. Interest rates: Home loans are offered at a comparatively lower interest rates than loan against property. There are higher chances of default in loan against property. So, lenders tend to provide a higher rate here.

 

  1. Practices to avoid: The loan against property money should not be misused for purposes such as gambling, speculative businesses, the stock market, and other such suspicious events.

 

  1. Tenure: You can avail a house loan for up to 30 years whereas a loan against property comes with a tenure of 15 years.

 

  1. Tax benefits: You cannot avail any tax exemptions under loan against property. However, home loans offer plenty of tax benefits to the customers under section 24 for interest rates and section 80C for the loan amount.

 

  1. Documentation: A home loan takes approximately 15 days to get sanctioned. But the documentation process is simple and hassle-free. However, loan against property documentation process is lengthy as lenders do a thorough check of the property details and personal information.

Looking at the differences, you can prioritise your requirements and check the options offered by the lenders. Think wisely and make an informed decision.

Keywords

home loan , house loan

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