The purpose or end-use should be a deciding factor when it comes to your selection of a loan. It is because every loan comes with a range of terms tailored for your goals. So, it is easy to understand the differences between a loan against property and a home loan. Even though both these loans are secure, their terms, be it the loan amount or the tenor, are distinct.
Take a look at the 4 important differences between a loan against property and a home loan.
In 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 based on mortgage. Here the basic distinction between the two will be clear 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. Then, you take a loan against your existing property, which you can then use to fund an array of other needs, including buying a 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.
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. For example, 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.
On the other hand, you can use the loan against property to 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 purchases. This versatile use of a loan against a property makes it a sure-shot winner.
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 the other hand, using a loan against property determines the tax benefits you can seek on it. If you use the funds from this loan to buy a property, 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 fees as business expenditure. However, when used for personal reasons, the loan against property repayments cannot be used to claim tax exemptions.
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 getting the loan at nominal interest rates is a good possibility. This apart, both these loans are sanctioned over a lengthy tenor, considering the loan amount and the security at stake. Most lenders will also allow you to 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 a loan against property if you need immediate access to a hefty sum. No matter what you choose, you can apply for loans with reputed lenders like Bajaj Finserv to make the most of your loan. Here you can get a loan against property up to Rs. 10.50 Crore* over a tenor up to 15 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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