Saturday, July 11, 2020
Home Finance Loan Against Property vs Home Loan: Know Which is Better?

Loan Against Property vs Home Loan: Know Which is Better?

Loan Against Property vs Home Loan: Know Which is Better?

Navigating and deciding the right credit option can prove tiresome if you are a new borrower. Loan against property and home loans are the most popular tools for credit. Hence the question arises, which loan would be a better option?

One can make an informed decision only after weighing various governing factors. Let’s delve into some of the differences between the two credit lending options.

  1. Purpose of loan procurement

The significant difference between the two lending tools is:

The credit obtained from home loans is used for constructing or acquiring a home.

Loan against property sanctions credit based on the collateral submitted. The loan amount sanctioned is influenced by the market factors governing the property as well.

This loan is generally availed for varied requirements of the borrower, including medical emergencies, personal emergencies, education etc.

  1. Interest rates

The interest rates for home loans are generally lower than those of loans against property. Since the Government of India and the Reserve Bank of India aim at providing affordable housing for all, there is a marginal lowering of interest rates for housing loans.

  1. Loan period

Both loans have significant tenure. While home loans can extend to 20 years, loan against property can extend from 10 years to 15 years.

However, with lenders like Fullerton India, you get benefits such as competitive pricing, minimal documentation, and digital processing at flexible tenures.

  1. Top-up features

A top-up feature gives every borrower the flexibility to procure additional credit on an existing loan. Thus, it helps a borrower address their financial needs efficiently without any hassle.

While loan against property provides the top-up option, home loans typically don’t. However, some financial platforms offer top-up benefits for home loans after assessments.

Thus surmising,

Parameter Loan against property Home loans
Purpose Can be used for various needs including addressing immediate financial needs Used for buying a house or construction of one
Loan to Value 60% to 70% 90% of the market value
Interest rates 9% to 24% (Fullerton India) 9% to 12%
Processing fee 3% of the loan amount (as per Fullerton India criteria) 0.80% to 1% (varies based on the lender chosen)
Top-up benefits Available Depends on the lender criteria

 

Which is a viable option?

Choosing between these popular tools is solely based on the need of the borrower. If you, as an applicant, have immediate financial crunches that need to be addressed, loan against property is a viable option. Since it is sanctioned based on the property value of the collateral submitted, it also gives applicants with lower credit score the opportunity to avail credit.

Let us look further into the eligibility criteria and documents required for the loan against property.

Loan against property eligibility criteria

Applicants should note that the eligibility criteria for loan against property vary from lender to lender. Financial platforms, such as Fullerton India, also offer personalised products that converge with the applicant’s needs.

Surmised below are some general regulations:

  • Occupational status
    • Salaried (working in MNC, private or public sector)
    • Or self-employed (should have a steady source of income)
  • Eligible age
    • Min 21years and Max 60 years if salaried,
    • Min 25 and Max 65 years if self-employed
  • CIBIL score
    • At Least 700
  • Properties that are eligible as collateral
    • Residential and commercial
  • Citizenship
    • Should be residing in India
  • IT return documents
    • Required (last three years document needed)

Documents required for a loan against property

The documentation requested for this loan varies between lender to lender. Listed below are the documents required while applying with Fullerton India. Through digital processing and minimal documentation, acquiring a loan against property with Fullerton India is hassle-free.

Documents that need to be submitted include:

  • Filled application with recent photograph
  • ID Proof: The documents that can be submitted as ID proof include Voters ID, Passport, Driving Licence, PAN card
  • Address Proof: The documents that can be presented as Address proof include Ration card, Utility bills, Rental agreement, Passport, Bank Passbook, Driving License
  • Proof of age
  • Bank Statements and salary slips of the past six months
  • Form 16
  • IT Returns of past three years
  • A cheque for processing fee
  • All documents on the property submitted as collateral.

Final thoughts

A home loan can be availed when the borrower’s requirement is constructing or buying a house. Loan against property is gaining popularity for mitigating immediate financial crunches among the various options available in the market. Through collateral submission, it reduces the risk for lenders and hence allows borrowers to receive a better loan amount value compared to other options. It also stands popular among borrowers because of the ease of access and repayment.

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