Loan on Property

Home loan vs loan against property: What’s the difference?

By Tata Capital
01 December 2025
8 mins read
2431

Individuals often consider applying for a loan to meet various financial needs and emergencies. However, with a variety of products available in the market, the selection can become confusing. Home loan vs loan against property is a common debate among borrowers. A home loan facilitates the purchase, building, or renovation of a new property, whereas a loan against property helps raise funds by pledging an existing residential or commercial property.

The terms home loan and loan against property are used interchangeably, but in terms of purpose, collateral, tenure, and costs, there are differences between a home loan and a LAP.

Difference between home loan and LAP

A home loan enables the purchase of a new residential property, while a LAP uses an existing property to raise funds. The following table highlights a loan against property vs a home loan difference.

Feature	Home loan	Loan Against Property (LAP)
Purpose	To purchase, construct, or renovate a residential property	Multi-use: business, personal expenses, education, medical, etc.
Collateral/security	Property being purchased or constructed	Existing residential or commercial property pledged
Loan tenure	Typically, 20-30 years	Typically, 15-20 years
Interest rates	Lower (7.75% p.a. at Tata Capital)	Higher (9% p.a. at Tata Capital)
Processing fees	0.10% to 0.20% of the loan amount + GST	2.25% of the loan amount
Tax benefits	Section 80C allows deductions of up to Rs. 1.5 lakh annually on principal amount repaid; Section 24(b) allows a yearly deduction of Rs. 2 lakh on interest paid	Limited; salaried individuals can claim Rs. 2 lakh if LAP is used to buy a new residential property, and borrowers can claim interest paid as a business expense if the amount is used for business purposes
Repayment flexibility	Options to prepay	Can prepay with conditions
Documentation	Income proof, property documents, ID, and address proof	Property papers, income/business proof, ID, and address proof
Eligibility criteria	Income, employment stability, credit score, and repayment capacity	Income, repayment capacity, property valuation

Collateral and security

Collateral and security are the key basis of differences between a home loan and an LAP. Here’s how the differentiation works.

Home loan

A borrower pledges the property being purchased or constructed as the primary collateral when taking a home loan. The ownership rights of this property lie with the lender until the loan is fully repaid. In case the borrower is unable to repay the loan, the lender can take over possession. During the loan tenure, the borrower cannot sell or transfer the property without the lender’s consent.

Loan against property

While availing of a loan against property, the borrower must pledge an existing residential or commercial property as collateral. The property remains in the borrower’s name, but the lender has a legal right over it until repayment. Since the property is old, the loan amount sanctioned and the interest rate applied are affected.

To conclude, in a home loan, the new property financed is the collateral itself, while in a LAP, the borrower pledges an already-owned property to secure the loan.

Loan tenure & repayment flexibility

A home loan and a loan against property differ based on the loan tenure and repayment flexibility.

Home loan

Generally, the loan tenure for a home loan is longer, ranging from 15 to 30 years, enabling you to spread the repayment over a longer period. The longer the tenure, the more affordable the EMIs. You can prepay a home loan, often with minimal or no penalty for floating interest rates. At Tata Capital, you can avail of a home loan for a flexible tenure of up to 30 years.

Loan against property

The tenure for a loan against property is often shorter, usually ranging from 15 to 20 years. Since the property pledged to secure the loan is an existing one instead of new, the loan entails higher risks. A relatively shorter tenure results in higher EMI but quicker repayment. Moreover, as the term reduces, the interest expense also reduces. Tata Capital offers a flexible tenure of up to 20 years for a loan against property.

To conclude, home loans have better flexibility in tenure and repayment options, whereas LAPs are structured for shorter financial commitments.

Interest rates and processing fees

The interest rates and processing fees for home loans and loans against property also differ due to the level of risk involved for the lender. Home loans are more affordable and purpose-specific, while LAPs cost more due to their flexible usage and risk profile.

Basis	Home loan	Loan against property
Interest rate	Relatively lower	Typically higher
Reason	Since the end-use is only property purchase, construction, or renovation, sanctioning the loan is less risky for the lender	Since the end-use can be various personal or business needs, including education, expansion, and machinery, the lender’s risk increases
Tata Capital interest rates	Starting from 7.75 p.a.	Starting from 9% p.a.
Tata Capital processing fee	Between 0.10% and 0.20% of the loan amount + GST	2.25% of the loan amount

Eligibility criteria & documentation

Here’s how the eligibility criteria and documentation requirements vary for a home loan and a loan against property.

Home loan

The eligibility for a home loan depends on income, employment stability, age, credit score, and repayment capacity. The documents you must submit include identity, address, income proofs, and property papers.

Loan against property

To assess your eligibility for a loan against property, lenders assess the market value of the pledged property, the borrower’s income, and repayment capacity. The documents required include property ownership papers, income proof, and ID/address proof. Self-employed individuals will need to submit business financials.

The common list of documents is as follows:

Identity proof – A copy of your passport, Voter’s ID, Aadhaar Card, PAN Card, etc.
- Address proof – A copy of your passport, Voter’s ID, utility bills like electricity bill or telephone bill
- Income proof – Salary slips for the past 3 months, bank statements for 6 months, ITRs
- Property papers – Title deed, registration certificate, etc.

While home loans and LAP require similar documents, the eligibility for LAP depends more on property valuation than employment status, giving more flexibility to business owners or self-employed individuals.

Tax benefits

One of the differences between a home loan and a loan against property is the tax deductions.

Home loans

The Income Tax Act 1961 offers multiple tax incentives on home loans. Under Section 80C, borrowers can claim exemptions of Rs. 1.5 lakh per year on the principal repayment. Similarly, Section 24(b) allows exemptions of up to Rs. 2 lakh annually on the interest expense for a self-occupied house. If the property is rented out, the borrower can claim deductions on the entire interest amount under Section 24(b) with no limits.

Loan against property

There are no tax benefits on a loan against property if the borrowed funds are used for personal expenses such as travel, weddings, or debt repayment. However, if you use the funds for business expansion, investment purposes, or anything related to the business, you can claim deductions on the interest paid as a business expense under Section 37(1).

Section 24(b) also provides tax benefits of up to Rs. 2 lakh on a loan against property to salaried individuals if they utilize the funds to purchase a new residential property. However, the acquisition or construction of the property must be completed within 5 years of securing the loan.

Loan against property vs home loan: Similarities

Some common features of a home loan and a loan against property are as follows:

Both are secured loans, and the borrower must pledge a property, residential or commercial, as collateral.
Both have long repayment tenures with fixed monthly EMIs.
Both require documentation, legal checks, and property valuation before disbursal.
Lenders evaluate property value, borrower’s income, and credit score before approving both.
Both offer tax benefits, especially if the property is self-occupied or used for business.
Both aid in financing big-ticket expenses, such as buying or constructing a house, or meeting the expenses of a vacation, wedding, education, or business expansion.
Both offer a balance transfer facility, allowing borrowers to transfer their existing loan to another lender who offers a lower interest rate.
Borrowers can apply for a top-up loan on their existing home loan or LAP, provided they maintain a good repayment track record.
In case of non-repayment, lenders can take over ownership of the pledged property to recover dues.

Conclusion

It is common for borrowers to feel confused between a home loan vs loan against property. However, a thorough understanding of the differences between the two, especially in terms of usage, can help make an informed decision. A home loan is the ideal choice if you’re buying or constructing a house. Conversely, a loan against property should be your option if you need money to meet other financial needs, including personal expenses such as education or business.

Tata Capital offers several housing loan options and loan against property offerings to make it easier for you to finance your requirements without dipping into your savings. These loan solutions come with attractive benefits, including affordable interest rates, minimal documentation, and a digitized process.

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FAQs

What is the difference between a home loan, a mortgage loan, and a loan against property?

A mortgage loan refers to a loan secured by property. It’s a broader term and includes both a home loan and a loan against property. Individuals borrow a home loan to buy, build, or renovate a residential property, pledging the property itself as collateral until loan repayment. A loan against property, on the other hand, requires you to pledge an existing residential or commercial property to raise funds for personal or business needs. Home loans have restricted use, whereas LAPs are multi-purpose.

The interest rates and tenures also vary for these loan types. Home loans have a lower interest rate than loans against property.

Do Loan Against Property (LAP) loans have higher interest rates than home loans?

Yes. Generally, the interest rate on a loan against property is higher than that on home loans. This is because the objective of securing a home loan is to purchase or construct a property, which directly adds to the lender’s secured asset base, making it relatively less risky. On the other hand, a LAP is a mortgage loan where funds can be used for any personal or business purpose, increasing the lender’s risk exposure. Additionally, LAPs often involve older properties with variable market values.

At Tata Capital, you can avail of a home loan at attractive interest rates, starting from 7.75% per annum, and a loan against property, starting at 9% per annum.

Can I get tax benefits on a loan against property?

Yes, a loan against property offers tax benefits under Section 24(b) and Section 37(1) of the Income Tax Act. Section 24(b) offers tax deductions of up to Rs. 2 lakh to salaried individuals if they use LAP to buy a new residential property. If the purpose of securing the loan is the construction of a property, exemptions apply if the construction is completed within 5 years of taking the loan.

Section 37(1) allows tax benefits if the loan is secured for business expenses. Rebates apply to the processing fee, documentation fee, and interest paid on the loan amount.

Can I use a home loan for personal expenses like education or business?

No. You cannot use a traditional home loan for personal expenses like education or business. The loan’s use is restricted, which means you can use the funds only for purchasing, constructing, or renovating a property. Using the funds for any other purpose breaches the terms of the loan agreement and can lead to strict penalties.

If you need funds for personal expenses like business or education, you can opt for a loan against property, wherein you pledge a residential or commercial property as collateral. The funds secured through a loan against property can be used for any legitimate purpose, such as a vacation, a wedding, a medical emergency, etc.

What is the maximum tenure for a loan against property?

The maximum tenure for a loan against property varies from one lender to another. It also depends on the borrower’s age and repayment capacity. Tata Capital offers a loan tenure of up to 20 years or 240 months. The minimum age limit for salaried and self-employed individuals to apply for the loan is 23 years, while the maximum age limit for salaried and self-employed individuals at loan maturity is 65 years and 70 years, respectively. You must be within the age limits to secure a loan for the entire extended tenure of 20 years.

Opting for a longer tenure may seem attractive as it lowers the EMI, but it is vital to understand that you end up paying more interest in the long run.

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