In India, both loans against property (LAP) and home equity loans (HEL) are popular options for homeowners looking to tap into the equity in their homes. However, there are some key differences between these two loans that borrowers should be aware of before making a decision.
What is a Loan Against Property (LAP)?
A loan against property (LAP) is a secured loan that allows you to borrow a certain percentage of the market value of your property. The loan amount can be used for any purpose, such as business expansion, debt consolidation, or even personal expenses.
Features of LAP:
- Higher loan amount: You can typically borrow up to 70-80% of the property’s market value.
- Flexible interest rates: Interest rates can be fixed or floating, and they are typically higher than home loan rates but lower than personal loan rates.
- Longer repayment tenure: Repayment tenures can range from 5 to 15 years.
- Multiple lenders: LAPs are offered by a variety of lenders, including banks, housing finance companies, and non-banking financial companies (NBFCs).
What is a Home Equity Loan (HEL)?
A home equity loan (HEL) is also a secured loan that allows you to borrow against the equity in your home. However, unlike LAPs, HELs can only be used for specific purposes, such as home improvement, education, or medical expenses.
Features of HEL:
- Lower loan amount: You can typically borrow up to 80% of the available equity in your home, which is usually lower than the LAP amount.
- Fixed interest rates: HELs typically come with fixed interest rates, which can provide more predictability for your monthly payments.
- Shorter repayment tenure: Repayment tenures for HELs are typically shorter than LAPs, ranging from 5 to 10 years.
- Limited lenders: HELs are offered by a limited number of lenders, mostly banks and housing finance companies.
Here’s a table summarizing the key differences between LAP and HEL:
Feature |
Loan Against Property (LAP) |
Home Equity Loan (HEL) |
| Purpose | Any purpose | Specific purposes (home improvement, education, medical) |
| Loan amount | Up to 70-80% of property value | Up to 80% of available equity |
| Interest rate | Fixed or floating, higher than home loan rates | Fixed |
| Repayment tenure | 5-15 years | 5-10 years |
| Lenders | Banks, housing finance companies, NBFCs | Banks, housing finance companies |
Which loan is right for you?
The best choice for you will depend on your individual needs and circumstances. Here are some factors to consider:
- Purpose of the loan: If you need a loan for any purpose, LAP is a good option. If you need a loan for specific purposes like home improvement or education, HEL might be a better choice.
- Loan amount: If you need a larger loan amount, LAP is the way to go.
- Interest rate: If you are looking for a fixed interest rate, HEL is a better option.
- Repayment tenure: If you prefer a shorter repayment tenure, HEL is the way to go.
- Lender relationship: If you already have a good relationship with a bank or housing finance company, you may be able to get a better deal on an LAP or HEL from them.
It is important to compare interest rates, fees, and other terms from different lenders before making a decision. You should also consult with a financial advisor to discuss your specific needs and goals.
Additional factors to consider:
- Processing fees: LAPs typically have higher processing fees than HELs.
- Prepayment penalties: Some LAPs and HELs may charge prepayment penalties if you pay off the loan early.
- Tax implications: The interest you pay on both LAPs and HELs is tax-deductible in India, up to certain limits.
In conclusion
LAP and HEL are both useful tools for homeowners looking to access the equity in their homes. By carefully considering your individual needs and circumstances, you can choose the loan that is right for you.
