If you’re planning to buy a new house or apartment, you’ve likely asked yourself, “Should I take a home loan or pay cash?” Both options can help you achieve your dream, but each comes with its own set of advantages and drawbacks.

A home loan offers the benefit of manageable monthly payments but comes with several considerations such as interest rates, loan tenures, and associated charges such as processing fees. On the other hand, paying cash means a significant upfront investment, but without the burden of ongoing loan payments.

Choosing the right option requires careful planning and research. This article will explore both home loans and cash payments in detail, helping you make an informed decision.

Benefits of Taking a Housing Loan for Home Purchase

Home loans provide financial support for purchasing your dream home, with the property serving as collateral. Let’s explore their benefits in detail.

Reduces Financial Burden

Home loans help reduce the strain on your finances by not requiring you to use up your savings, retirement funds, or liquidate investments.
Additionally, these loans typically offer long tenures of up to 30 years, which spreads out the repayment over an extended period, easing the financial burden in the long run.

Potential for Credit Score Improvement

Taking a home loan allows you to demonstrate financial responsibility through consistent EMI payments over a defined tenure. Timely payments improve your creditworthiness, reflecting your ability to manage debt effectively.
Additionally, having a home loan diversifies your credit profile. If you have unsecured loans, such as personal loans, adding a secured loan like a home loan can further strengthen your credit history and gradually enhance your credit score.

Tax Benefits   

If you’re wondering whether it is better to take a home loan or pay cash, consider the tax advantages. Under Section 80C of the Income Tax Act, 1961, you can claim a deduction of up to INR 1.5 lakhs on the principal repayment of the home loan. Additionally, under Section 24(b), you can claim deductions up to INR 2 lakhs on the interest paid on your home loan for a self-occupied property.

Balance Transfer Facilities

A home loan balance transfer allows you to shift your existing loan to another lender. This can help you secure lower interest rates, improved customer service, or more favourable loan terms, depending on your financial circumstances.

Benefits of Paying Cash for Property Purchase

To better understand home loan vs cash payment for a property, let’s examine the advantages of paying in cash:

Immediate Ownership

The idea here is simple – you pay the entire amount in cash upfront to purchase the property. This means you can secure immediate ownership of the property. There’s no need for financing; instead, you rely on your personal savings to cover the purchase price.

Additionally, paying in cash allows you to close the deal faster, as you won’t have to wait for loan approval. This could give you an edge over other potential buyers, as sellers often prefer immediate payment, which can speed up the transaction.

No Interest Rates and Credit Requirements

With no lenders or borrowing involved, you don’t have to worry about monthly EMIs, loan tenures and processing fees. This means you won’t need to set aside funds each month for loan repayments, giving you more flexibility in managing your finances.

Additionally, purchasing in cash means there’s no dependency on your credit score. Even if your credit score is less than ideal, it won’t affect your ability to buy the property outright.

Disadvantages of Paying Cash for Property

When you pay the entire amount upfront, the funds come entirely out of your pocket. This means a significant portion of your savings is tied up in the property, leaving you with limited liquid assets for other expenses or emergencies.
This could put your finances in a vulnerable position, particularly if an unexpected situation arises, such as medical expenses or urgent financial needs.
Additionally, unlike home loan borrowers, cash buyers cannot avail themselves of tax deductions.

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Conclusion: Which Option Is the Best?

The choice between a home loan vs cash payment depends entirely on your financial situation and priorities.

If you wish to enjoy tax benefits, build your credit history, and retain cash reserves for emergencies, opting for a home loan is a prudent choice. It allows you to achieve your dream of homeownership while spreading out the cost over time.

On the other hand, if quick ownership and avoiding recurring costs are more important, paying in cash may be the better option. It lets you acquire the property faster without the need for loan approvals or EMI commitments.

If you decide that a home loan suits your needs, consider SMFG Grihashakti. Get home loans of up to INR 1 crore* to secure your ideal home, with interest rates starting from just 10%* per annum. Check your home loan eligibility, estimate your Home Loan EMIs, and apply online today!