When you need a large sum of money, there are different loan options available to you. Two common types are home loans and loans against property. Though they might seem similar, they have different purposes and features. Let’s explore the key differences in simple terms.
What is a Home Loan?
A home loan is money you borrow from a bank or financial institution to buy a house. Here are some key points about apply for home loan online
- Purpose: Home loans are specifically meant for purchasing a house or apartment.
- Property Ownership: The property you buy with the loan serves as the collateral. If you can’t repay the loan, the lender can take ownership of the property.
- Loan Amount: The loan amount is usually based on the value of the property you want to buy, and the lender typically finances up to 80-90% of the property value.
- Interest Rates: Home loans generally have lower interest rates compared to other types of loans.
- Tax Benefits: Home loan borrowers can enjoy tax benefits on both the principal repayment and the interest paid.
What is a Loan Against Property?
A loan against property (LAP) is money you borrow by using your existing property as collateral. Here are some key points about loans against property:
- Purpose: LAP can be used for various purposes, such as business expansion, education, medical expenses, or any personal financial needs.
- Property Ownership: The property you already own (could be residential, commercial, or industrial) is used as collateral.
- Loan Amount: The loan amount is usually based on a percentage of the property’s market value, typically 50-70%.
- Interest Rates: LAP generally has higher interest rates compared to home loans but lower than personal loans.
- Flexibility: You have more flexibility in using the loan amount for various needs, unlike home loans which are restricted to property purchase.
Key Differences Between Home Loan and Loan Against Property
- Purpose:
- Home Loan: Specifically for buying a house.
- Loan Against Property: Can be used for various personal and business needs.
- Collateral:
- Home Loan: The new property you are purchasing.
- Loan Against Property: An existing property you already own.
- Loan Amount:
- Home Loan: Typically covers 80-90% of the property’s value.
- Loan Against Property: Usually covers 50-70% of the property’s market value.
- Interest Rates:
- Home Loan: Generally lower interest rates.
- Loan Against Property: Higher interest rates compared to home loans but lower than personal loans.
- Tax Benefits:
- Home Loan: Eligible for tax benefits on principal and interest.
- Loan Against Property: Generally, no tax benefits.
- Usage Flexibility:
- Home Loan: Only for purchasing a property.
- Loan Against Property: Can be used for multiple purposes.
How to Apply for Home Loan and Loan Against Property
If you’re looking to buy a home, you can apply for a home loan online or visit a bank. Here are some simple steps:
- Apply for Home Loan Online:
- Visit the lender’s website.
- Fill out the application form with your details.
- Submit necessary documents like income proof, identity proof, and property details.
- Wait for approval and verification.
- Apply Loan Against Property:
- Visit the lender’s website or branch.
- Fill out the loan application form.
- Submit documents like property papers, income proof, and identity proof.
- The lender will evaluate your property and creditworthiness.
- Upon approval, you get the loan amount based on your property’s value.
Conclusion
Understanding the difference between home loan and loan against property is essential to make the right financial decision. While a home loan is ideal for buying a new house, a loan against property offers flexibility for various financial needs using your existing property as collateral. Always evaluate your requirements, interest rates, and repayment capacity before choosing the loan that best suits your needs.