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The Difference Between a Home Loan and a Loan Against Property

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  • Highlights

  • What is a Home Loan?

  • What is a Loan against Property?

  • Home Loan vs. Loan Against Property

  • Final Thoughts

Everyone has to meet their financial needs and loans have been proven to be a viable means of alternate funding for meeting those needs. Usually, the problem is that many people don’t have the right information to aid them in choosing the best type of loan for their specific needs. For instance, some people cannot distinguish between a home loan and a loan against property (LAP).

It’s easy to assume that a home loan means the same as a loan against property. Many people get confused by the similarities between ‘home’ and ‘property,’ while for others, it could be the fact that both address “housing,” or “property.” This mix-up when it comes to a home loan vs a loan against property can be misleading for potential borrowers.

This article will teach you all that you need to know about the difference between a home loan and a loan against property so that you can decide on which one best suits your needs, and how to apply for such.

What is a Home Loan?

A home loan is a secured loan package that aids borrowers in the purchase of property or an already constructed house. Likewise, home loans also are provided to borrowers for the construction of a new house.

The borrower, however, has to make an initial or down payment to the lender to access the loan. The lender fixes the interest rate and remains the owner of the property until the borrower has offset the loan EMIs. The borrower can only take over complete ownership of the house after full repayment of the loan. In the event of a default, the lender retains ownership of the structure indefinitely.

What is a Loan against Property?

Borrowers get a loan against property by using a landed property as collateral for the loan they intend to take. In this case, the borrower must possess landed property, including private property, such as a personal house, or public buildings like estates, offices or shopping complexes. The borrower’s property must also be eligible for use as collateral.

Home Loan vs. Loan Against Property

In understanding the differences between home loans vs. loans against property, it’s important to explore the packages they offer and the similarities between their service offerings. This provides a detailed summary of their differences. The table below shows the minor similarities that exist between both loan packages.

Similarities between Home loans and Loans Against Property

Below are important similarities to note between a home loan and a loan against property. Both loan packages do the following:

  • Offer secured high-value loans
  • Can be assessed by salaried (employed) and self-employed individuals.
  • Loans are repaid monthly as Equated Monthly Instalments (EMIs), inclusive of principal amount and interest.
  • Provided by banks and mortgage financing agencies.
  • The loan tenor is usually long, with home loan tenor ranging up to 30 years, and LAP tenor ranging up to 18 years.

Difference Between LAP and Home Loan

This section will give you some clarification on the home loan vs property loan debate. Below are the differences between a home loan and a loan against property that you should know about.

1. Usage

Home loans are exclusive. This means that a home loan can only be used for the purchase, renovation or construction of landed property or house. A loan against property, on the other hand, can be used for any or such purposes as the borrower deems fit.

2. Interest rate

The interest rates for home loans are usually lower than the interest rates for loans against property. This is due to the policy intervention of the Indian government themed “affordable housing for all.” The interest rates for a home loan start at 6.70%* for salaried and professional individuals.

While the interest rates for a loan against property are higher, starting at 8.35%* for salaried and professional applicants.

3. Disbursement amount

Loans are disbursed according to the loan to value (LTV) estimate or valuation of the property. For a home loan, individual borrowers can get up to 90% of the property’s market value. For a loan against property, a borrower can only get as high as 60% to 70% of the property’s estimated worth.

4. Loan tenor and repayment

Being a high-value loan, a home loan usually has a loan tenor that’s pegged at a maximum of 20 years with 5 years as the minimum and a flexible monthly repayment option.

A loan against property also shares this long loan tenor attribute, but it’s usually set between 15 years and 20 years. It also has the added advantage of top-up loan benefits (i.e. getting extra amounts on the pre-existing loan.)

However, in both instances, note that repayment is a key issue, as defaulting on a loan can cause you dearly. This is because the lender reserves the right to take over the property and auction it off to recover the loan.

Final Thoughts

Both home loans and loans against property are high-value secure loans with amazing packages. Bajaj offers several amazing packages for a home loan, with interest rates starting at 6.75%. We also offer excellent packages for a loan against property.

To apply for a Bajaj Housing Finance Home Loan, click here.

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