Home Loan vs Loan Against Property (LAP): Know the Difference
7 November, 2024
Synopsis
A home loan is designed to provide funds for purchasing, constructing, or renovating a residential property.
A loan against property (LAP) involves borrowing against the value of an existing property, whether residential or commercial.
While home loans are intended for property purchase or renovation, LAPs offer more flexibility for addressing personal or business financial needs.
Choosing between a home loan and a loan against property (LAP) depends on your financial objectives. Understanding the key differences between these two products will help you make an informed decision based on your needs.
1. Definition
Home Loan: A home loan is a loan taken to finance the purchase, construction, renovation, or extension of a house or apartment. It typically comes with a fixed or floating interest rate and is repaid over a tenure through Equated Monthly Instalments (EMIs).
Loan Against Property (LAP): A LAP is a loan where an individual uses an existing property as collateral to borrow funds. This property can be residential or commercial, and the loan amount depends on its value.
2. Purpose
Home Loan: The purpose of a home loan is limited to buying, constructing, or renovating residential properties.
LAP: A loan against property offers flexibility and can be used to meet personal or business needs, such as funding a wedding, expanding a business, or covering medical expenses.
3. Loan-to-Value (LTV) Ratio
Home Loan: Lenders typically provide 80-90% of the property’s value as the loan amount, with the remaining amount contributed by the borrower.
LAP: In the case of a LAP, lenders generally offer 60-70% of the property’s value as the loan amount since it is secured against an already-owned property.
4. Eligibility Criteria
The eligibility requirements for both home loans and LAPs are similar. However, there are some key differences:
For Home Loan: Applicants must provide proof of the property’s purchase or approval for construction.
For LAP: Borrowers need to submit proof of ownership of the property used as collateral.
Both loans require documents related to identity proof, income proof, and residence proof, as well as a good credit score to secure favorable interest rates.
5. Benefits
- Home Loan: Borrowers can enjoy tax benefits under the Income Tax Act, 1961:
Section 80C: Deduction of up to ₹1.5 lakh on principal repayment.
Section 24: Deduction of up to ₹2 lakh on interest repayment.
Additionally, several government schemes promote homeownership through subsidies and tax incentives.
LAP: While LAPs do not offer tax benefits like home loans, they provide quick liquidity for a variety of personal or business financial needs, with flexible repayment options.
Choosing Between a Home Loan and a Loan Against Property (LAP)
Understanding these distinctions will help you select the right financial product:
If you are purchasing or renovating a house, a home loan is the ideal option due to its tax benefits and subsidies.
If you need funds for other financial needs—such as expanding a business or funding higher education—using an existing property to take out a LAP can be a more suitable choice.
Get Home Loans or Loans Against Property with HDFC Bank
HDFC Bank offers tailored financial solutions to meet your specific requirements:
Home Loans: Benefit from customized repayment plans, lower interest rates, and tenures of up to 30 years. Manage other financial commitments with ease.
Loan Against Property (LAP): Take advantage of doorstep service, competitive interest rates, low EMIs, and flexible repayment tenures to address immediate financial needs.
Disclaimer: Terms and conditions apply. The information provided here is for general informational purposes only and is not a substitute for personalized financial advice. Loan approval is at the discretion of HDFC Bank Limited, subject to documentation and verification. Interest rates may vary—please contact your relationship manager or visit the nearest branch for the latest rates.
