When a borrower borrows a sum of money from banks or NBFCs at a certain rate of interest to buy a home or a real estate property, it is termed as a home loan. Home loans are usually repaid to the financial institution that disburses them in the form of EMIs. On the other hand, if a bank or NBFC lends money to a borrower while keeping the borrower’s asset as security or collateral, it is termed as a Loan Against Property (LAP). The asset can be a piece of land, home, investments or any other commercial property that belongs to the borrower.
Let us find out the difference between these two types of loans.
|Basis of Difference||Home Loan||Loan Against Property|
|Sanction||The loan is sanctioned based on the property you are buying. The loan amount is usually a percentage of the property value.||The loan is sanctioned against the mortgage of any of your assets. The value of the asset determines how much loan amount is offered.|
|Purpose||It can be used to purchase property such as flats, land for constructing a home, an under-construction residential property etc.||It can be used to buy commercial property or a shop, or can be used as a business loan or as a personal loan for funding a family business, or just to buy a property. In other words, there is no fixed purpose defined for the usage of a LAP.|
|Tax benefits||It has a tax exemption of up to Rs. 1.5 lakh on the principal amount under Section 80C of the IT Act. Besides, the repayment of the interest portion is also for tax benefit Under Section 24.||It does not carry tax benefits unless the end use of the loan qualifies for such benefits. For instance, LAP used for the purchase of a new home qualifies for Section 24 benefits on the loan interest.|
|Loan to value||Before providing g the loan, the lender considers the value of the property. They then sanction a percentage, generally 80-90% of the property value, as a loan.||The lenders consider the value of your asset that is being held as collateral for loan approval. Accordingly, you may be sanctioned a loan amount based on this value.|
|Tenure||It has a long repayment tenure of 20-30 years. The EMI is comparatively smaller but carries a higher total interest cost. You can check both using a home loan interest calculator.||It has a shorter repayment tenure of a few years only, generally not more than 15 years.|
|Documentation||The process is simple and should not take more than 15 days for full verification and documentation.||The process is lengthy and complicated. The lenders do a detailed verification of property ownership and other related facts.|
In addition to this, home loan interest rates are lower compared to many other loan products. However, being a secured loan, LAP is also available at attractive interest rates. Therefore, both these types of loans are popular forms of finance.