Availing a loan comes with its own share of financial jargon, especially when it comes to the home loan, thus, leaving people confused how much a Home Loan is different from a Loan against Property. Sometimes both; home loan and loan against property are used interchangeably.

To understand better, it is crucial to have an analysis of these two financial instruments. For the instant home loan, the person should be self-employed or salaried, above 21 years old, regular income, professional stability, and good credit history. While the loan against property eligibility criteria involves the person employed in the existing business, 21 years of age, possess monthly repaying capacity, and timely record of EMIs.

Below is a comparative study between their characteristic features, benefits, and scope to help you find which one is better suited for you:

What is a Home Loan?

A home loan means a loan amount taken from a bank or financial institution to procure a house. It is usually taken either for purchasing a plot of land for development of house or extension and renovation to the residing home. The concerned property is mortgaged to the lender as security till the loan has been paid back with the interest due for it.

What is a Loan against Property?

A property is an asset used in the crucial times of life. The self-occupied commercial or residential property can be used to borrow a loan. The concerned property is used as collateral and the loan is distributed by the lender according to the property value and income to pay back the borrowed amount.

Loan against Property vs Home Loan

Borrowers often get used confused between these two loans as both financing options come with a horde of features to cover high-end expenditure. Below is a brief comparison between the two:

Interest Rates

Since a home loan is a secured advance, the interest rate is lower than unsecured loans. The applicants with good credit history and repayment plan have higher chances of getting a lower rate as compared to those who lack these things. Whereas the loan against property interest rates is floating as well as fixed.

Similar to the home loan interest rates, a borrower can select which interest rate is convenient for him/her. Moreover, interest rates on a home loan are restricted a few points lower in order to provide affordable and reasonable housing loan to the people of the country.

Maximum Loan Amount

According to the guidelines issued by RBI, when applying for a home loan online, the maximum loan amount a person can get for the home loan ranges between 75%-90% depending on the loan to value ratio whereas the loan against property is 60% depending on the loan to value ratio. In case of LAP, the amount can differ depending on the location and income of the borrower.

Tax Exemption

According to Section 80C of Income Tax, the home loan can get a tax exemption up to Rs. 1.5 lakhs on principal repayment amount whereas there is no particular benefit in terms of tax exemption when applying for loan against property online.

Loan Tenure

The maximum repayment period for home loan is 30 years since it comes under high-value loans; on the other hand, the maximum tenure available for a loan against property is 15 years.

Loan Processing Time and Fees

Since the home loan is a secured loan, the lender will keep your home as collateral till the time the charges are complete. The loan process can also differ from lender to lender. A one-time fee processing fee is a maximum of 1.5% of the loan amount.

On the other hand, the loan against property is sanctioned by keeping the property as collateral and for which the processing fee is 1% of the loan amount + GST (18% of the processing fee). Generally, the processing time and fee in loan against property is smoother.

Prepayment Charges

In case of loan against property, lenders charge prepayment fee for loans linked to fixed-rate but cannot charge against any loan associated with floating rate of interest. Whereas for the loan against property, as per RBI guidelines, lenders cannot charge any prepayment fee for any loan linked on floating rates.

Tax Benefits

As per section 80C of Income Tax, a maximum of Rs. 1,50,000 can be availed on the principal home loan amount whereas there is no such provision for tax advantage for the loan against property. Additionally, the interest of the home loan can take tax benefits up to Rs. 2,00,000 under Section 24.

Nature of the Property

The housing loan can only be taken for residential/commercial/ready-to-move/under construction home purpose whereas loan against property can only be availed against a commercial/residential/industrial property.

Balance Transfer Facility

A home loan borrower has the option to transfer the amount from base rate to MCLR (marginal cost of funds based lending rate) but there is no such facility in case of loan against property (LAP).

After having analyzed both types of loan criteria, characteristics, benefits, and eligibility in detail, you should now be able to understand the two widely used financing instruments. One thing to note is that loan against property helps to address a range of business and personal obligations while a home loan can help to procure a house or property still under construction.

For better understanding, you can take help of IndiakaLoan.com to avail a home loan or loan against property at best interest rates from public/private sector banks and NBFCs as it provides expert and professional advice to those seeking fair loans.