Buying a property or needing funds for business expansion? You might be considering a Home Loan or a Loan Against Property (LAP). While both involve property as collateral, they serve different purposes and come with distinct features. Choosing the right one is crucial for your financial well-being. This guide from GoodLyf will break down the key differences between LAP and Home Loans to help you make an informed decision.
Looking for the best loan options? Explore GoodLyf's Loan Against Property (LAP) options and Home Loan options today!
Here's a quick overview of the differences between LAP and Home Loans:
Let's delve deeper into each aspect to understand the differences thoroughly.
Home Loan: The primary purpose of a Home Loan is to finance the purchase of a new residential property. The funds are strictly designated for this purpose.
Example: You want to buy a new apartment for ₹50 Lakhs. A Home Loan is the appropriate choice to finance this purchase.
LAP: Loan Against Property is a versatile loan that can be used for various purposes, including business expansion, funding higher education, covering medical expenses, or consolidating debt. The funds are not restricted to a specific purpose.
Example: You own a commercial property and need ₹30 Lakhs to expand your existing business. A LAP can provide you with the necessary funds.
Home Loan: The loan is used to acquire the property itself. The property being purchased serves as collateral.
LAP: The borrower already owns a property (residential or commercial) which is used as collateral to secure the loan. The property must be free from any existing encumbrances.
Home Loan: Home Loans typically offer a higher LTV ratio, often up to 75-90% of the property's market value. This is because the lending institution is directly involved in the property acquisition.
LAP: LAP generally has a lower LTV ratio, typically ranging from 50-70% of the property's market value. This is due to the broader range of potential uses for the funds, making it a riskier proposition for the lender.
Example: A property valued at ₹1 Crore might secure a Home Loan of ₹80-90 Lakhs, whereas a LAP on the same property might only secure ₹50-70 Lakhs.
Home Loan: Home Loans usually have lower interest rates compared to LAP. This is because they are considered less risky due to the specific purpose and the lender's direct involvement in the property acquisition. Interest rates are often linked to external benchmarks like the Repo Rate as directed by the RBI.
LAP: LAP interest rates are generally higher than Home Loan rates. This reflects the increased risk associated with the broader range of potential uses for the borrowed funds.
Home Loan: Home Loans typically offer longer tenures, ranging from 15 to 30 years. This allows borrowers to manage their EMIs more comfortably.
LAP: LAP tenures are usually shorter, ranging from 5 to 15 years. This is because lenders aim to recover the loan amount faster, given the perceived higher risk.
Home Loan: Home Loans offer tax benefits under Section 80C (principal repayment) and Section 24(b) (interest paid) of the Income Tax Act. These benefits can significantly reduce your tax liability.
LAP: LAP offers tax benefits only if the borrowed funds are used for business purposes. The interest paid on the loan can be claimed as a business expense, reducing your taxable income.
Both Home Loans and LAP involve processing fees, legal charges, valuation fees, and other incidental charges. These costs typically range from 0.5% to 2% of the loan amount. It's important to compare these charges across different lenders.
The choice between a Home Loan and a LAP depends on your specific needs and financial situation:
Before making a decision, carefully assess your financial needs, repayment capacity, and risk tolerance. Compare offers from multiple lenders to secure the best possible interest rates and terms. Consult with a financial advisor for personalized guidance.
Ready to explore your options? Get a personalized loan quote from GoodLyf today!
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