Home loan vs Cash Payment: How to finance your home?

While purchasing a property, there is a dilemma in the buyer’s head about taking a home loan or making a cash payment. Cash payment might sound like a swift option and it also prevents you from any additional charges that you have to pay in the form of interest rates while paying off a loan but taking a home loan has advantages of its own.

 

1. Lock-in of Funds:  If you are looking forward to taking a home loan then you should be aware of the lock-in period. This time period is given by the bank or the financing company in which you can end your loan by paying off all the amount. However, some amount of penalty will be charged. Paying off the loan within this time period will still save you a pretty good amount of money that you would have spent in paying off the loan over the complete duration. If you have enough funds for buying a property then you should apply for a home loan and pay it off within the lock-in period.

 

2. Extra money always comes in handy: This is one of the best benefits of taking a home loan. It encourages you to get a higher sum for your project and having some extra money for your project is always a good thing. It creates more room for more and better options regarding your project. It also will increase your ability to bear any hidden expenses that might arise in the middle of the project.

 

3. Impact on creditworthiness: Taking a loan can have a positive impact on your creditworthiness which is good for any future loans. If you take a loan. You only have to pay your EMIs in time and it will increase your credit score. Having a good credit score has many benefits. It will make it easier for you to get any loan in the future, you will get better interest rates on insurance and some more perks.

 

4. You can consider better property options: Having a home loan means having extra money for your project. This will make it easier for you to consider more and better property options. Now, You can look for the property which was earlier out of your budget. You can also get better interest rates from certain real estate companies which will make paying off the home loan even more convenient.

 

5. Tax benefits: As per Section 80C of the Income Tax Act, You can avail of the tax benefits while repaying the home loan. Section 24b of the Income Tax Act allows you a deduction of interest on the home loan. If you will buy a property using cash then you will not get any of these tax benefits.

A home loan is certainly a better option if you are looking forward to buying a property because of the benefits it offers. Cash payment, on the other hand, might sound like a swift option but it is unsafe and there is lack of a well-detailed evidence of the transaction. You also need money for any unprecedented emergency. That’s why you should prefer taking a home loan rather than making a cash payment.