Home Loan and Loan Against Property are among the most frequently used secured loan products, but many borrowers remain confused since both involve property as collateral. Home Loan is for a specific purpose—purchasing, building, or repairing a house—while Loan Against Property (LAP) is a loan taken against an already owned residential or commercial property, allowing you to raise money for any purpose. Both products offer large loan amounts and long repayment tenures but differ significantly in purpose, interest rates, eligibility, and advantages. This blog explains the difference between Home Loan and Loan Against Property.
Key Differences: Home Loan vs Loan Against Property
| Criteria |
Home Loan |
Loan Against Property (LAP) |
| Purpose of Loan |
Buy, construct, or renovate a house |
Raise funds for business, education, medical, or personal needs |
| Interest Rates |
8%–11% (lower) |
9%–14% (higher) |
| Loan-to-Value (LTV) Ratio |
Up to 75%–90% |
40%–70% |
| Loan Amount Eligibility |
Based on income, credit score, property price |
Based on income, credit score, market value of existing property |
| Tenure |
Up to 30 years |
Up to 20 years |
| Processing Time |
Longer due to property checks |
Faster (property already owned) |
| Risk Level |
Risk of losing purchased home if defaulted |
Risk of losing owned property if defaulted |
| Tax Benefits |
Available (Section 24(b) & 80C) |
Generally none (for business use only) |
| Property Type Accepted |
Only residential |
Residential, commercial, rented |
| Disbursement Process |
Linked to property stage/verification |
Lump-sum after valuation |
What is a Home Loan?
Home Loan is a secured loan to purchase, construct, or renovate a residential property. The property remains collateral until the loan is repaid.
- For first-time buyers, builders, or renovators
- Can be used for land purchase plus construction
- Loan Amount: Up to 75%–90% of property value
- Interest Rates: 8%–11% per year (varies by bank/credit score)
Home loans are among the cheapest long-term finance options for property.
What is Loan Against Property (LAP)?
Loan Against Property (LAP) is a secured loan using existing property (residential, commercial, or rented) as collateral while you still own and use it.
Purpose of LAP
- Business expansion or working capital
- Education costs
- Medical emergencies
- Debt consolidation
- Weddings or major personal requirements
Who Should Take It?
- Business owners needing urgent cash
- Salaried/self-employed with property ownership
- Anyone needing a large loan at lower rates than personal loans
Common Loan Against Property Features
- Loan Amount: 40%–70% of property value
- Interest Rate: 9%–14% per annum (varies by profile/property)
LAP is flexible, high-value financing without selling your property.
Difference between Home Loan and Loan Against Property
1- Interest Rates & Charges
- Home Loan: 8%–11% per annum
- LAP: 9%–14% per annum
- Processing Fees: 0.5%–1% (Home Loan), 1%–2% (LAP)
- Prepayment/Foreclosure: No charge (Home Loan floating rate), 1%–4% (LAP in some cases)
LAP is costlier due to higher risk, lower LTV, and broader property types.
2- Eligibility Criteria
- Home Loan: Steady income, 700+ credit score, clear property title, age 21–60 (salaried), 21–65 (self-employed), co-applicants allowed (family)
- LAP: Higher stable income, 700+ credit score (sometimes higher), property ownership documents, age up to 70, co-applicants needed if multiple owners
3- Loan-to-Value Ratio (LTV)
- Home Loan: 75%–90% of property value (higher EMI, less upfront outlay)
- LAP: 40%–70% of market value (smaller loan, lower EMI, need more own funds for high needs)
4- Documentation Required
Home Loan
- KYC: Aadhaar, PAN, Passport/Voter ID/Driving Licence, photos
- Income Proof: Salary slips, Form 16/ITR, employment certificate
- Property docs: Sale agreement, title deed, plan approval, allotment letter, encumbrance certificate
- Bank statements: Last 6–12 months
- For self-employed: GST returns, business registration, P&L statement, balance sheet
Loan Against Property
- KYC: Aadhaar, PAN, Passport, Voter ID, etc.
- Income: Salary slips/ITRs, financial statements
- Property docs: Original title deed, tax receipts, plan, occupancy certificate
- Business proof (self-employed): Registration, GST, P&L, balance sheet
5- Approval & Processing Time
- Home Loan: 7–21 days (due to more verifications)
- LAP: 3–10 days (property already owned; faster checks)
6- Tax Benefits
- Home Loan: Interest up to ₹2 lakh/year (Section 24b) and Principal up to ₹1.5 lakh/year (Section 80C)
- LAP: Only for business use; no benefit for personal use
7- Risk & Safety Factors
- Home Loan: Risk of losing purchased property if defaulted; credit score drop; property auction for recovery
- LAP: Risk of losing existing property (residential/commercial) if defaulted; higher risk due to high loan amount
Home Loan vs Loan Against Property – Which Loan should you chose ?
- Home Loan: Best for buying/building/renovating a home, longer tenure, tax savings
- LAP: Best for large, urgent needs (business, education, medical); when you already own property; flexible use
Pros & Cons of Home Loan and Loan Against Property
Pros of Home Loan
- Lower interest rates
- Long repayment (up to 30 years)
- High LTV (75%–90%)
- Tax benefits (24b, 80C)
- Transparent, regulated
Cons of Home Loan:
- Longer process/time
- Requires clear-title, approved project
- More documentation
- Funds can only be used for home
- Limited flexibility after disbursement process starts
Pros of Loan Against Property
- High-value funds using existing property
- Faster approval
- Flexible use—business, education, etc.
- Lower rate than unsecured loans
- Longer tenure than most loans
- Multiple property types accepted
Cons of Loan Against Property
- Higher interest than home loan
- Lower LTV (40%–70%)
- Risk of losing owned property if default
- Prepayment/foreclosure charges may apply
- Higher processing fees (deeper property checks)
Useful points and tips for Home loan and loan against property
- Banks prefer Home Loans for strong income, clean property, longer term, and predictable EMIs (home purchase/construction/renovation).
- 2025 rate trends: Home Loan (8%–10%), LAP (9%–13%). 750+ credit score gets the best deals.
- Tips: Maintain 750+ credit, EMI-to-income ratio under 40%, add co-applicant, clear debts, provide clean property documents, stable earnings.
FAQs about Home Loan and Loan Against Property
1. What is a Loan Against Property?
Ans: Borrow money by pledging existing property (residential, commercial, or rented) as security—retaining ownership/use. Lender can sell if you default.
2. Is a Home Loan cheaper?
Ans: Yes. Home Loans at 8%–11% interest, LAP at 9%–14% due to higher risk.
3. Can Home Loan be used for other purposes?
Ans: No. Only for buying, building, or renovating residential property.
4. Can LAP be taken on rented/commercial property?
Ans: Yes, if all documents clear.
5. Which offers better tax benefits?
Ans: Home Loan, with deductions for interest (24b) and principal (80C).
6. What’s the maximum tenure?
Ans: Home Loan: up to 30 years. LAP: up to 15 years.
7. Is LAP approval faster?
Ans: Yes, usually 3–10 days if paperwork is ready.
8. What happens if LAP EMIs are missed?
Ans: Lender may repossess and auction the pledged property.
9. Does credit score matter?
Ans: Yes, 700+ needed for both; 750+ best rates.
10. Can NRIs apply for Home Loans or LAP?
Ans: Yes, many banks offer both—extra documentation needed for LAP.
11. Which loan for existing property?
Ans: LAP if you need funds for non-property purposes; Home Loan for new home purchase/build.
Choose a Home Loan if you’re buying/building a home and want lower rates, longer terms, and tax benefits. Choose LAP if you already own property and need quick, high-value funding for any purpose. Understand your needs to make the best choice for 2025.
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