Difference between a LAP and Home Loan

Home Loan is something borrowed for a particular duration of time and that has to be paid back along with the extra ordinary payment of interest. People take different kind of loans as per their requirements. Most common loans are home loans as owning a house is a primary need of every individual.

People often get confused with the two terms – Home Loan and Loan Against Property (LAP). Although there is a very thin line of difference between both the terms. In this blog, we will cover the differences and benefits of one over the other.

A home loan is given by lender for purpose of buying a home. This kind of loan is given in favor of property that you plan to buy. It includes both the cost of buying a land/plot and the cost of constructing a home on it.

LAP (Loan against Property) is processed against a property that is already on borrower’s name. LAP is taken for both the personal and business usage. In this case, the mortgaged security is already owned by the borrower.

LAP can be issued in any of the following scenario –

  • Business expansion
  • Marriage of son or daughter etc
  • Higher studies loan for son or daughter
  • Medical treatment fund
  • For any vacation like abroad trip etc.

With LAP, interest rates can vary from 12% to 15.75% approx and tenure can be up to 15 years. Interest rates are generally higher in case of LAP as compared to Home loan since loan amount is not monitored  in LAP about its usage .Home loan tenures are generally higher as compared to LAP and are easily available at interest rates as low as 8.3% per annum.

There is a strict restriction and monitoring by the issuing bank on the usage of money against home loan whereas in loan against payment the borrower can freely utilize the some assured for any kind of personal, business or commercial usage.

All the tax deductions both under section 80C and section 24 for principle amount and interest respectively are applicable to Home loan. In case of LAP tax benefits, these exemptions are only allowed for business purposes.

So, if you want to simply buy a house to live in then Home loan is the best suitable option. But for cases one wants to expand his business or get extra funds for commercial usage LAP is the best choice. Loan against payment is the best solution for quick release of funds. One needs to decide the best option as per one’s needs. For more information and clarification visit us at taxreturnwala.com