Loan Against Property vs. Home Loan: What’s the Real Deal?

Need quick cash for a house, business, school, or to ditch debt? Using your property as security is a common way to score a loan, and it’s often cheaper than other options.

Two roads you can go down:

• Home Loans: Made just to buy or build a home.
• Loan Against Property (LAP): Uses your property as security, and you can use the money for almost anything.

Both use property, but what they’re for, how they work, costs, who gets approved, and what the taxman says are different.

This guide breaks those differences down, so you can pick the perfect loan!

 

What’s a Home Loan?

A home loan is dough you borrow just to:

• Snag a house or apartment.
• Build a house on some land.
• Fix up your place.
• Switch your current home loan to another bank (balance transfer).

Basically, the dollars need to go toward buying or improving a place to live.

Oh, and the house you’re buying? Yeah, that backs the loan.

 

What’s a Loan Against Property (LAP)?

A Loan Against Property (kinda like a mortgage) lets you borrow cash by using your property as security. You don’t HAVE to buy a house with it.

The best part is? You can blow the money on almost anything, like:

• Growing a business.
• Getting some operating cash.
• Paying off other debts.
• Medical bills or school.
• A wedding!
• A new car or other things.

Unlike home loans, LAPs are super flexible as long as the lender is on board.

 

What Do Home Loans and LAPs Have in Common?

Before we get into the ways they’re different, here’s what’s the same:

• Both are property-backed loans.
• They’ll check out your property’s value and make sure everything’s legal.
• You need to show proof of income, have decent credit, and have your paperwork together.
• The interest rates are usually better than other unsecured loans.
• You can take a long time to pay them back (10-20 years or longer).

Even though they’re alike, payback times, eligibility, and costs can vary a lot.

Who Can Get Approved: Home Loan vs LAP

1. Age Stuff

• Home Loan: Most lenders want you between 21 and 65. Some will work with older folks if they have a steady paycheck.
• LAP: Usually 23 to 65, but some go up to 70 if you have retirement income and a way to pay it back.
• Bottom Line: They both want to make sure you can pay before you retire. LAP might have age rules due to its flexibility.

2. Income Time

• Home Loan:
  • Works if you get a salary.
  • Also works if you’re self-employed.
  • Bring pay stubs, tax forms, and bank statements.
• LAP:
  • Works for both employed and self-employed peeps.
  • If you own a business, it needs to be profitable.
• Bottom Line: Home loans are a tad easier on income. LAP wants to know your income is steady because you can use the money however.

3. Property Type?

• Home Loan:
  • For a new or existing house.
  • Also, for land if you’re building.
  • Apartments or houses are fine.
• LAP:
  • Houses work.
  • Commercial property works too (office, store, etc.).
  • Even industrial, but they might check it.
• Bottom Line: LAP lets you use many property types, but they’re pickier about commercial property values.

4. Credit Score

• Home Loan:
  • Aim for 750 or higher.
  • 700-749 might work with good paperwork.
• LAP:
  • 750 or better is ideal.
  • Some might go for 700+, but they’ll check you out really well.
• Bottom Line: Score-wise, they are the same, but LAP lenders watch credit because of the risk.

How Much Dough Can You Borrow?

Home Loan

There are rules for how much of the property’s value they’ll lend:

• Up to 90% of the property is under ₹30 lakh.
• Up to 80% if it’s between ₹30 lakh and ₹75 lakh.
• Up to 75% if it’s more than ₹75 lakh.

So, for a ₹1 crore place, they might lend you 75% of that.

Loan Against Property

LAP usually lets you borrow less on the property’s value since it’s risky:

• Usually, 50% to 70%.
• Commercial properties are closer to 50%.

It also hangs on your credit, the property’s shape, and how risky the lender is.

• Bottom Line: Home loans let you borrow more, so you need less saved up. LAP lenders want you to put more down, since they don’t know what you’re doing with the money.

Interest Rates: What’s Cheaper?

Home Loan Rates

Home loans usually have lower interest rates since they’re safer for lenders.

Right now, they’re around 8%-10% a year, but things change.

LAP Rates

LAP rates are usually higher than home loans, like 9.5% to 14% per year. The rate depends on:

• How much dough you borrow
• What property type is it (house vs. store)
• Your credit history
• If you have a steady income
• The lender (bank vs. someone else)

Why LAP Costs More

• Using the money for anything is risky.
• Businesses can go up and down.
• Commercial properties can be tough to nail down values.
• LAP loans default more often.
• Bottom Line: If you want the cheapest loan and need it for a house, grab a home loan.

How Long to Pay It Back?

Home Loan Time

Home loans give you a long time, like 15 to 30 years. That means:

• Smaller monthly payments.
• Paying more interest long-term (if you don’t pay early).
• Easier on your wallet each month.

LAP Time

LAP is usually shorter:

• 5 to 15 years.
• Getting longer is tough.

Paying It Off Early

You usually can pay off both loan types early, but the rules are different:

• If your home loan rate is adjustable, there’s no extra payoff fee.
• If it’s fixed, they might charge you.
• LAP: They might charge you for paying early, depending on the lender.
• Bottom Line: Home loans usually give you more time, which makes payments easier.

Taxes: What’s the Deal?

Home Loan Tax Stuff

Home loans have tax benefits that save you cash:

• Deduct up to ₹1.5 lakh of the principal you pay.
• Deduct up to ₹2 lakh of interest paid.
• First-time homebuyers get extra deductions.

These things lower your taxes.

LAP Tax Stuff

LAP doesn’t usually have tax breaks since it is not home-related.

If you use the money to fix your home, you might get a break, but it’s tricky.

• Bottom Line: Home loans are much better for taxes. LAP won’t give you any unless it’s for home stuff and you prove it.

When to Go for a Home Loan?

Home loans are great for:

• Buying a house or apartment.
• Building a house.
• Fixing up your place.
• Switching to a cheaper lender.

Basically, if it’s about housing, grab a home loan.

When to Go for a LAP?

LAP works best when you need cash for:

• Expanding a business
• Paying off other debts
• Weddings, travel, or big splurges
• Medical or school emergencies
• Buying a commercial property
• Starting a business

LAP turns your property’s value into greenbacks for almost anything the lender says.

 

What About Risks?

Home Loan Risks

• Big, long commitment.
• Property values can change.
• Payment issues.
• Early payoff fees for fixed-rate loans.

LAP Risks

• Higher interest than home loans.
• Less payback time.
• Early payoff fees.
• Lenders vet you really hard.
• Commercial properties? Tough to sell if you face payment troubles.

 

Which Loan Is Right?

Go for a Home Loan If:

• Buying or building a home.
• I want tax breaks.
• Lower interest is necessary.
• A long payback time is wanted.
• Payments need to be on the predictable side.
• You’re buying your first home.

Go for LAP If:

• You own property.
• Cash is needed for biz or personal reasons.
• You want to borrow big (up to the LTV limits).
• I want to ditch high-interest unsecured loans.
• Payments can be made in a short time.
• You want to ditch debt or fund something big.

Some Tips

Home Loans:

• Find the best middle ground for payments and payoff time.
• Think about switching loans if rates drop.
• Don’t forget to keep your paperwork for taxes.

LAP:

• Have a game plan for the money.
• Keep your credit in great shape.
• Have papers ready for your business.

Final Words

Home loans and LAP are helpful, but they’re for different reasons.

Home loans are cheap and great for housing, with tax breaks. LAP is flexible, but it costs more and payment times aren’t as flexible.

Pick the great decision by thinking about:

• Why do you need the money
• Your taxes
• What you can afford to pay back
• How much risk are you good with
• Your future plans

If you think about these things, choosing the right loan will be much easier.