A home loan is a type of unsecured loan. If you wish to purchase a plot of land, under-construction property or a new home, you can apply for a home loan. However, a loan against property (LAP) is a kind of secured loan that can help meet a range of financial requirements. As the name of the loan suggests, you need to pledge a property (residential or commercial) as collateral to apply for the required loan amount. Here are the other points of differences between these two types of loans.
The rate of interest plays a crucial factor when you apply for a loan. It determines the interest you pay as a part of the EMIs. A home loan usually has a lower interest rate than a loan against property. However, if you choose a reputed lending bank, you can get competitive interest rates on both kinds of loans.
Loan to Value
A lender always takes into account certain factors like employment type, job security and income before sanctioning an amount of a home loan. On the other hand, the value of the property pledged as collateral is evaluated to determine the amount of a loan against property.
Generally, you can receive 90% of the amount of a home loan and up to 60% of the amount of an LAP. If you choose a top lending bank, you can apply for an LAP starting from ₹5,00,000 to ₹10,00,00,000 and for a home loan starting from ₹3,00,000 to ₹5,00,00,000.
A home loan can be particularly used to buy a house, an under-construction property or a plot of land. However, you can use a loan against property to finance both personal and business-related requirements. The personal requirements can include a medical emergency, your child’s higher education or marriage, purchase of a car, debt consolidation and more. The business requirements can include a business expansion and working capital. Therefore, the reasons to apply for an LAP may differ.
The tenure of a home loan might be higher than that of a loan against property. If you apply for a home loan from a renowned lending bank, you may get a tenure of up to 25 years. The tenure of an LAP may be up to 15 years.
The documentation process of a home loan is generally simple. A lending bank may take less time to complete the documentation and verification processes. However, it can take longer to verify the documents for a loan against property. The lending bank usually carries out a thorough check of the pledged property and property ownership and evaluates other property details.
In terms of tax savings, a home loan is more beneficial than a loan against property.
The interest component of the EMIs paid in a year can be claimed as a tax deduction from your net monthly income. This can be up to ₹2,00,000 according to Section 24 of the Income Tax Act of India. You can also claim a tax deduction for the principal component of the EMIs paid in the year. This can be up to ₹1,50,000 as per Section 80C.
On the other hand, you may not get several tax benefits on an LAP. However, in case you have used the loan to finance the purchase of a new home, you can save on tax payments according to Section 24.
Wondering that a LAP or home loan kaise milta hai? Simply apply for the loan at a reputed lending bank verified by the RBI. Check your eligibility criteria and the documents required and proceed with your loan application process.