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How Is Loan Against Property Different From A Home Loan

  • Highlights

  • A loan against property is a mortgage loan

  •  You pledge the property you’re buying in a home loan

  • Use a loan against property to fund versatile needs

  • Claim tax benefits on loan against property basis usage

The purpose or end use should be a deciding factor when it comes to your selection of a loan. This is because every loan comes with a range of terms that are tailored for your goals. Keeping this context in mind, it is easy to understand the differences between a loan against property and a home loan. Even though both these loans are secured in nature, their terms, be it the loan amount or the tenor, are distinct from each other.

Take a look at the 4 important facts of differences between a loan against property and a home loan.

Sanction

In case of a home loan, you pledge the property you are purchasing as security to raise funds. On the other hand, a property loan or loan against property is given to you basis a mortgage. Here the basic distinction between the two will be clear to you if you gauge the difference between pledge and mortgage. To put it simply, to avail a home loan you pledge the property you are buying and for a loan against property, you take a loan against your existing property, which you can then use to fund an array of other needs, including buying new property.

The loan amount in both cases depends on the value of the property you are buying or mortgaging. Generally, if the property is in good condition and in a well-connected area, you can avail 70% to 80% of the property’s worth as a loan. Loans against property in India are becoming increasingly popular, and you can take a loan against commercial property or residential property, or even against a plot of land.

Usage

Now that you understand ‘what is loan against property’ and ‘what is housing loan’, the next step is to become well-versed with their uses. You can use a home loan to buy a home or property such as a ready flat, an under-construction apartment, a land for the construction of home, and a range of other residential and commercial property.

Also Read: How does your credit score affect Loan Against Property eligibility?

On the other hand, you can use the loan against property for purchase of commercial property and for shop purchase, or use it as a business loan and fund a series of professional expenses. Moreover, you can use this loan as a personal loan to fund a wedding in the family or simply use the loan for property purchase. This versatile uses of a loan against property makes it a sure-shot winner.

Features and Benefits of Loan Against Property

Tax Benefits

When servicing a home loan, you can claim an exemption of up to Rs.1.5 lakh under Section 80 C every financial year with respect to principal repayments and up to Rs.2 lakh under Section 24 basis interest payment. On other hand, the usage of a loan against property determines the tax benefits you can seek on it. This means if you use the funds from this loan to buy a property then you are eligible to claim home loan tax exemptions on the same. Alternatively, if you fund business requirements with this loan then, under Section 37(1) of the Income Tax Act, you can claim the interest repayment and incidental costs like processing fee as business expenditure. However, when used for personal reasons, the loan against property repayments cannot be used to claim tax exemptions.

Other Terms

As compared to a home loan, the loan against property interest rates is a tad bit higher. However, if you have an existing relationship with the lender or have a good credit history then getting the loan on nominal interest rates is a good possibility. This apart, both these loans are sanctioned over a lengthy tenor, keeping in consideration the loan amount and the security at stake. Most lenders will also allow you make prepayments and foreclosure on the loans at no extra charge.

To sum up, take a home loan only when you want to buy a ready property, but stick to loan against property if you need immediate access to a hefty sum. No matter what you choose, you can apply for the loans with reputed lenders like Bajaj Finserv to make the most of your loan. Here you can get a Loan Against Property of up to Rs.5 crore over a tenor of 20 years. To start your search for a loan on a competitive interest rate, check your pre-approved offer and enjoy instant approval.

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