Home Loan vs Loan Against Property: What's Different?

The core distinction

A purchase home loan is generally used to finance the acquisition of a property. A loan against property (LAP) uses an existing property as security for permitted borrowing purposes, which may include business or other eligible requirements depending on the lender and applicable rules. In one, the property being financed and the property securing the loan are the same; in the other, they're not necessarily connected at all.

Where the two typically differ

• Purpose of finance — a home loan is purpose-restricted to the property purchase; LAP proceeds can often be used more flexibly, subject to the lender's terms.
• Property requirements — a home loan generally requires the property being purchased to meet the lender's criteria; LAP requires the existing security property to qualify.
• Loan-to-value limits — these typically differ between the two products, with LAP often carrying a lower LTV than a purchase loan.
• Income requirements and interest rates — LAP is sometimes priced differently from a purchase home loan, reflecting the different risk profile.
• Tenure and documentation — requirements vary by lender and product.

Which one fits a given situation

Which facility is appropriate depends on the purpose of the borrowing, the property involved, the applicant's financial information and the criteria of the relevant lender. Someone buying a new home generally needs a purchase loan; someone with an existing, owned property who needs funds for another purpose — business capital, another investment, a large expense — is the more typical LAP candidate.

A practical starting point

Being clear about the actual purpose of the funds before approaching a lender — it determines which product is even relevant, before eligibility or pricing enters the conversation.