HIGHLIGHTS
- Unlike loans, there are no applicable interest payments on self-financing or lump sum payment, this means you save significant funds.
- The home loan process involves completing the loan application, verifying the property, and submitting the relevant documents.
- Using the self-financing method does not require a good credit rating and cash payments have no specified eligibility criteria.
Buying a home is a major financial decision. This is a decision that must be made after carefully considering various factors. Essentially, there are two ways to buy a home – by taking out a
If you have enough funds, you might not find the need to take on debt and pay extra money in the form of interest, and rightly so. Despite this, most people prefer to take out a home loan for various reasons. Here are the pros and cons of both options.
Benefits of
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Unlike loans, there are no applicable interest payments on self-financing or lump sum payment, which means you save significant funds.
No credit requirement
Using the self-financing method does not require a good credit rating and cash payments have no specified eligibility criteria. However, unlike loan repayments, paying cash for a home does not raise your credit score.
Immediate ownership of the property
As you are paying the entire amount out of your own funds, you do not have to present the original papers to the banks as is done in the case of home loans. This ensures that you get immediate ownership of the property.
Free to do paperwork
The home loan process involves completing the loan application, verifying the property, and submitting the relevant documents. So in cash payment via self-financing, you get rid of these steps.
Benefits of getting a home loan:
Extra money is always useful
Whether you decide to take out a home loan or pay cash, you need to remember to have cash available for financial emergencies. A financial emergency can strike at any time – you could need medical treatment or lose a job, which could potentially affect your cash flow. Instead of spending all the money on a single real estate investment, you should keep an emergency fund. You could also use the amount to build your retirement corpus.
Taking out a loan can improve your creditworthiness: Did you know that your credit scores can go down even if you don’t take out a loan? This is another point of debate when it comes to home loan vs cash payment in India.
With home loans, you become eligible for tax deductions of up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act. You can get an extra Rs. Deduction of 2 lakhs if your family stays in the same property. So, home loans allow you to save immediate funds, build credit scores, own property immediately, and get tax benefits. Paying cash to buy a house, conversely, has the following characteristics.
Locking of funds
Buying a property is a huge investment; one in which you end up tying up a huge amount of money. Experts believe that even if you have the necessary funds to buy the property at once, it is better to take out a mortgage. Instead of spending a lump sum on the property, it is better to opt for a large down payment and pay off the remaining amount in higher monthly EMIs, since you can afford it.
You can consider better ownership options
When choosing to prepay for a property, you generally need to stick to the budget you have. As a result, you might end up compromising on your dream home. Your budget may end up restricting the type of property you can purchase. Instead, it is better to make a down payment on a home loan.