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Loan against property vs home loan: Key differences

By Finserv MARKETS - Jul 31,2019
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Loan Against Property vs Home Loan

The terminologies “home loan” and “loan against property” are widely confused but are, in reality, significantly different. A home loan is a borrowing to enable the purchase or construction of a home. The property does not currently belong to the individual applying for the loan. On the other hand, a Loan Against Property (LAP) is a secured borrowing taken on an existing property and can be employed for a variety of purposes including to fund business expansion, purchase properties, improve existing properties, medical expenses or pay for education and marriage.

A few financial service providers, including Finserv MARKETS, provide competitive offerings for both types of borrowings with a quick application process, minimal documentation requirement, and complete transparency. In the case of home loans, Finserv MARKETS goes beyond typical financial products and provides legal and financial information relevant to owning real estate and protects your loved ones from payments for the loan with customized solutions.

Here are the key differences between LAP and home loans

  • Disbursed amount:-

Purchasing a new home can lead to significant expenses- probably one of the highest allocations for expenditure. A home loan allows disbursement of a higher percentage (up to 90% of the property value). If you compare this to LAP, you can avail an amount of up to 60 to 70% of the current market value. Finserv MARKETS provides solutions with higher loan amounts of up to Rs. 1 crore for salaried individuals and Rs. 3.5 crore for self-employed customers. With the Pradhan Mantri Awas Yojna, first-time applicants can access benefits of lower EMIs and interest rates (amounting to 6.93%).

The amount of loan sanctioned depends on the amount applied for, the value of your collateral, and the creditworthiness and repayment capacity. The creditworthiness is assessed on the basis of your age, income, current employers, and CIBIL report. Next, your EMI is dependent on the principal amount, interest, and loan tenure and can reduce in case of a drop in interest rates or in the case of partial prepayment. While taking a loan, you should read through the eligibility criteria and documentation requirements for each provider. The loan is disbursed after verification of the pertinent documents.

  • Rate of interest:- 

With the Reserve Bank of India’s focus on ensuring affordable housing, the interest rate on home loans is comparatively lower to LAP.

  • Tenure:-

The term for loan repayment is significantly higher for LAP and home loans as compared to personal loans. In the case of home loans, the tenure can extend to up to 20 years. Finserv MARKETS allows a tenure between 2 and 20 years for repayment of LAP- providing you with the flexibility to opt for a short-term or long-term solution. You can make full or part pre-payment with the product with minimal charges. For home loans, Finserv MARKETS allows for pre-payment or loan foreclosure at no additional cost.

  • Top-up facility:-

LAP allow you flexibility while opting for a disbursement amount. Further, you can use this allocation for a variety of purposes. Banks rarely offer top-up facilities on home loans. With Finserv MARKETS, you can access balance transfer or top-up options at nominal interest rates without the need for additional documentation.

  • Tax considerations:-

Home loans allow for tax exemptions under Section 80C with a maximum of Rs. 1,50,000 exempted on the principal amount and under Section 24 for a maximum of Rs. 2,00,000 exempted on the interest payable. There is an additional exemption on interest under Section 80EE. There are no tax exemptions available on LAP under Section 24, and tax benefits depend on the purpose and use of the loan amount. If the loan amount is used for financing property, the tax benefits can be claimed under Section 24(b).

Finserv MARKETS is one of the providers that offer you custom-made solutions to finance your new dream home or fulfil your personal goals for your family or business. Online portals offer you the flexibility of managing your account online to track and access reports and access faster online processing and complete transparency.

“Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make It Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere”!

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522