When you are looking for some major funding to facilitate your dreams, whether it happens to be building or buying a home, or for some other reason such as upcoming wedding or a much needed vacation; you decide to take a loan. The confusion arises when choosing between the type of loan to choose; especially between a loan against property and a home loan. Let us look at the basics of both, so that you will be able to make the choice that will suit you:
What is loan against property?
A loan against property is a loan taken from the lending institution after submitting collateral as security.
What is a home loan?
A home loan is a loan taken to facilitate the funding of purchasing or constructing a new home. Here, the title deed of the property you are about to buy is under the bank’s control (as collateral) until the repayment of your home loan.
The interest rate for home loans vary between 10.15% up to 13% and for LAP it starts from a minimum of 12.5%. The interest rates may vary not only depending on the customer’s profile, but also with the bank the loan is applied for.
For a home loan, the eligibility criteria depends mainly on the income as well as the value of the property for which loan is applied. Whereas for a loan against property, the loan amount eligibility mainly depends on the value of the property and then the income of the applicant.
In the case of HL, the maximum loan amount may be up to 80-85% of property value, provided there is enough supportive documents and income for the applicant. Similarly, for LAP, the maximum loan amount that can be availed is no more than 70% of the property value with supportive income of the applicant.
For a home loan, the process is quite tedious because the legalities of the property to be purchased needs to be verified, similarly the credit history of the applicant needs to evaluated and finally loan is disbursed. In case of self or under construction houses, the funds will be disbursed after prior verification of progress at each stage of construction. The entire process may take up to 3 weeks.
For a LAP, the fund is disbursed in a single payment and the whole process doesn’t usually exceed a week’s time.
For a home loan there are tax benefits deductible under Section 80C. Whereas for a loan against a property there is no tax benefit applicable.
Now, you should be in a position to decide, exactly which type of loan would you be requiring. Irrespective of the type of loan you apply for, you must have a healthy credit score and a positive credit history if you want the whole process to be hassle free.