People take home loans for buying a ready house or for booking a property that may be under construction. Banks and non-financial companies such as Bajaj Finserv provide loans for residential and commercial properties.
People usually take a loan against property for raising additional funds for business. Banks and non-financial companies offer two types of loans against property. The first is a pure loan, where they pay a lump sum to the borrower against an immovable property as security. The second type is a line of credit that the bank sets up in the form of an overdraft facility with a limit set based on the repayment capacity of the borrower and the value of the property.
Sometimes borrowers avail of loans against property for personal purposes such as marriage or education of members of the family. Sometimes, the loan also finances the purchase of another property, mainly when it is impossible to get a loan against the property because of technical reasons such as a defect in its title. For a loan against property, banks may accept a commercial or residential property as a pledged security.
For a home loan, the applicant has to pledge the property he or she wishes to purchase with the lender, but for a loan against property, the applicant has to pledge a different property and not the one that he or she wishes to purchase.
For a home loan that an applicant takes to purchase a residential house property, he or she can claim the tax benefits on Home Loan under the Indian income tax laws. The first tax benefit is for repaying the principal component of the home loan, and this is available under Section 80 C, which offers relief up to Rs. 1.5 lakh for all residential properties taken together.
Borrowers can claim the other benefit under Section 24(b), which offers relief for the interest paid on such loans. The benefit is available for commercial properties and is applicable on amounts borrowed from relatives and friends.
Banks and non-financial companies charge interest on home loans in the range of 9-12 percent, and home loan interest rate depends on the profile of the borrower and type of lender. For loan against property, lenders usually charge a higher interest rate than they charge against home loans, but this is lower than personal loans. Depending on the profile of the borrower and the type of lender, the rates may vary from 11-14 percent.
Also Read: What is a Plot Loan?