Mr A wants to buy a house, while Mr B owns a house but needs funds for an emergency. Both of them avail loans, where the house is used as security or collateral. But they are not the same type of loan. Does this sound confusing?
The former is a Home Loan, while the latter is a Loan Against Property, the two most popular types of loans where the property is the collateral. Barring this similarity, the two have different features and serve different needs. In this blog, we will explore the differences between them to help you make an informed decision.
Understanding Home Loans
- A home loan is a loan provided by a bank or financial institution to help you purchase a house or flat.
- The loan amount is usually up to 80% of the property's value, and the repayment tenure can be as long as 30 years.
- Home loans come with fixed or floating interest rates. Fixed interest rates remain constant throughout the loan tenure while floating interest rates vary based on market conditions.
- One advantage of home loans is that they come with a top-up loan facility. A top-up loan is an additional loan amount that you can avail of over and above your existing home loan. The top-up loan interest rates are usually lower than personal loan interest rates.
Understanding Loans Against Property
- A loan against property is a loan provided by a bank or financial institution against the collateral of your property.
- The loan amount can be up to 60-70% of the property's value, and the repayment tenure can be up to 15 years.
- Loans against property also come with fixed or floating interest rates.
- One advantage of loans against property is that they come with a lower interest rate compared to personal loans.
- The loan amount can be used for any purpose, such as business expansion, education, marriage or medical expenses.
In the case of both types of loans, before applying for the loan, you need to check the home loan eligibility criteria. The criteria include age, income, employment history, credit score, and property value. You can use a calculator to estimate the loan amount, EMI and home loan interest rate.
Differences between the two
| Home Loan |
Loan Against Property |
| Lower interest rates and longer repayment tenures |
Higher interest rates and shorter repayment tenures |
| Offers higher loan amount |
Offers lower loan amount |
| Suitable for those who want to buy a new flat or construct a new house |
Suitable for those who want to raise funds for any purpose |
Factors to consider before opting for a loan
Before opting for a loan, you need to consider several factors such as your financial goals, income, expenses, credit score, loan amount, interest rate and repayment tenure. You should also evaluate your ability to repay the loan and the impact of the loan on your future finances.
It is essential to maintain a good credit score and loan-to-value ratio to increase your chances of getting a loan at a lower interest rate. You can also negotiate with the bank or financial institution to get a better interest rate.
Also Read: [Home Loan and Mortgage Loans - What's the difference?]
Summing Up
Choose between a home loan and a loan against property based on your needs. Axis Bank offers both home loans and loans against property with competitive interest rates and flexible repayment options. You can use Axis Bank's home loan EMI calculator or loan against property calculator to estimate your loan amount, EMI and interest rate. This will help you make an informed decision.
With proper planning and budgeting, you can repay the loan without compromising your future finances.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
