Today, there are different loans for your diverse needs. Whether you need funds to purchase a house or vehicle, there is a loan for every need. However, the presence of various options often leaves space for confusion.
Sometimes, the same sounding loans are used interchangeably, leading to misinformation. For example, you might get confused between a home loan and a loan against property.
Given below is the actual difference between home loans and a loan against priority. Read on!
What Is a Home Loan?
A home loan is a secured loan where you can borrow money to buy a plot of land, under-construction property or ready to move house. The property you avail the loan for does not belong to you, instead, you borrow funds to purchase that property. When you avail a housing loan, the documents and ownership of the property is with the lender until you repay the loan amount. You can avail a loan at a fixed or floating rate of interest. If you default on loan repayment, the lender has the right to auction off the property to recover the loan amount.
What Is a Loan Against Property?
A loan against property, on the other hand, is a secured loan that you can avail by pledging your property. You can mortgage your residential, commercial or industrial property to borrow money to finance your varied needs. The amount of loan you can avail is based on your property value. To avail a loan against property, you need to submit your property papers to the lenders, which remain with them until you repay the loan. Similar to a home loan, the lender can auction your property if you fail to repay the loan.
Difference between a Home Loan and a Loan Against Property
| Basis | Home Loan | Loan Against Property |
| Purpose | You can avail a home loan to purchase ready-to-move house property, a plot of land or an under-construction house. | You can avail a loan against property to fulfil varied financial goals. |
| Interest rates | The interest rates of home loans are low, starting from 6.5%. | The interest rates of loans against property are comparatively higher, starting from 8.45%. |
| Tenure | Home loans are offered for a longer tenure. You can avail a home loan for up to 20-30 years. | Loans against property come with a shorter tenure. You can avail a LAP for up to 15 years. |
| Tax benefits | You can avail tax benefits on a home loan on the interest and principal repayment under sections 24 (b) and 80C, respectively, under the Income Tax Act, 1961. | You can avail tax deduction on interest payment on loan against property under section 37(1) of the Income Tax Act, 1961. However, this deduction is available only if you use the funds for your house property repairs. |
| LTV | Home loan’s LTV is usually 90% of the property value. | Loan against property’s LTV is up to 60 to 70%.
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Though both these loan offerings are secured, there are a few differences between them. You must identify your needs and choose the one that fits your usage.
