Home Loan vs. Loan Against Property: Which One Has Better Interest Rates?

There are mainly two common options when you want a big loan: Home loans and Loans Against Property. Both Home loans and LAP are secured loans and subsequently have collateral attached; however, they each have different loan rates and tenures and have certain advantages. For instance, Home loans are to buy or construct a house, in which the borrower may opt for LAP to finance miscellaneous projects. The differential interest rate is, therefore, the focal point in deciding the better of the two. Subsequently, we shall compare the odd ends of these aspects, costs, and benefits, one vis-a-vis another, to make a firm decision.

1. What Is A Home Loan?

A Home Loan is a financial product offered to individuals by banks or non-banking financial companies (NBFC) to buy/construct/improve a home, with the house for which the loan is being sought as security/collateral for as long as the loan remains outstanding.

Features of A Home Loan:

• Purpose: Used for the purchase or construction of residential properties only.
• Loan Amount: Typically, up to 80%–90% of the property’s value.
• Interest Rate: Lower compared to LAP, generally in the range of 8%–10% p.a.
• Loan Tenure: Up to 30 years, making it easier to manage monthly EMIs.
• Tax Benefits: Borrowers can claim tax deductions under Sections 80C and 24(b) of the Income Tax Act.

Advantages of a Home Loan:

• Lower Interest Rates – More affordable compared to LAP.
• Longer Tenure – Allows for manageable EMIs.
• Tax Benefits – Helps reduce the effective loan cost.
• Higher Loan-to-Value (LTV) Ratio – You can borrow a higher percentage of the property’s value.

2. What is a Loan Against Property (LAP)?

A Loan Against Property (LAP) allows individuals to leverage their existing property (residential, commercial, or industrial) to secure a loan. Unlike Home Loans, there are no restrictions on how you use the borrowed amount.

Features of LAP:

• Purpose: Can be used for business expansion, education, medical emergencies, or other personal expenses.
• Loan Amount: Typically, up to 50%–70% of the property’s market value.
• Interest Rate: Higher than Home Loans, usually in the range of 9%–14% p.a.
• Loan Tenure: Up to 15–20 years, shorter than Home Loans.
• Tax Benefits: Limited tax benefits, only if used for business purposes.

Advantages of LAP:

• Higher Loan Amount – Ideal for financing large expenses.
• Multipurpose Use – No restriction on fund utilization.
• Lower Interest Rates than Unsecured Loans – More affordable than personal loans or business loans.

4. Which Loan is More Cost-Effective?

Lower Interest Rates – Home Loan rates start from 8%, while LAP interest rates are higher.

• Tax Benefits – You can claim deductions on principal and interest.
• Longer Repayment Period – 30 years tenure reduces the EMI burden.

When LAP Might Be More Suitable:

• If you need funds for personal or business needs beyond real estate.
• If you own a property but do not want to sell it to access funds.
• If you do not qualify for a personal loan due to credit constraints.

Overall, Home Loans are more cost-effective due to lower rates and tax benefits, but LAP provides greater flexibility.

5. Which Loan Should You Choose?

Go for a Home Loan if:

• You need funds for buying, building or renovating a home.
• You prefer lower interest rates and longer repayment tenure.
• You want tax benefits on loan repayments.

Opt for a Loan Against Property if:

• You already own a property and need liquidity for business, education, or medical expenses.
• You are not eligible for unsecured loans but need a large loan amount.
• You are comfortable with a slightly higher interest rate.

Final Words

When it comes to Home Loans vs. Loan Against Property, interest rates are the most important point on the agenda. Home Loans are generally more affordable due to lesser interest rates plus tax benefits; however, LAP provides more flexibility and higher principal amounts. The right choice of approach is subject to the needs of a financial situation and repayment capability. It is essential to compare lenders and loan terms before a decision is made to ensure that the right intent is within reach. Would you wind up getting a comparison based on your custom needs? Mention that in the comments!