Cash Payment or Home Loan – Which Option is Better?
Buying a home is a huge financial decision, and therefore, it must not be made in haste. You must conduct extensive research about different properties before making the decision.
A dilemma often faced is whether to pay in cash or apply for a loan to buy the home. Before making the choice, it will be beneficial to understand the pros and cons of both these options.
Paying with cash
Developers often prefer this option because they receive the money instantly. In comparison, lenders may take some time before they disburse the home loan amount. Here are the benefits and disadvantages of making the payment in cash.
- Credit history not required
When you apply for a loan, the lenders consider your credit history. However, you may not have a credit history or may have a lower credit score. In such a situation, availing of a housing loan may be difficult and paying in cash is a better option.
2. Negotiation power
When you are willing to pay the entire property price in cash, you are able to negotiate a better deal. There are no issues due to any delays in the disbursement of the home loan amount. The entire transaction is completed quickly, which provides you with better negotiation power.
3. No debt
When you do not have to worry about paying the equated monthly installments (EMIs), you enjoy peace of mind. Furthermore, if something untoward happens to you, your family will not have to carry the financial burden of repaying the loan in a timely manner, thus ensuring their financial security.
- Inadequate funds
It is most likely that you do not have the entire amount needed to purchase your dream home. Therefore, this inadequacy of funds needs to be overcome and a loan is the most beneficial option.
If you purchase your home with cash, you may have to compromise on other things. This may be not being able to afford the car you want to buy or not taking your dream vacation.
Most people use a home loan to buy their dream house. Although your home will be mortgaged to the lender, choosing a loan has certain advantages and disadvantages as discussed below.
- Affordable interest
Contrary to popular belief, the home loan interest rates are not very high. Furthermore, you may repay the loan over a period of many years. This ensures you face no financial difficulty in making a timely payment.
2. Tax deductions
Section 80C of the Income Tax Act, 1961 offers tax benefits on your loan of up to INR 1.5 lakh per annum. In addition, you are eligible for deductions on the interest paid under section 24(b) of the Income Tax Act, 1961.
There are several reasons why your home loan application may not be approved. Some of these include lack of credit history, employment history, or insufficient repayment capability. This may make it difficult for you to use a loan to pay for your house.
2. Higher expenses
It is most likely that you opt for a long duration when applying for the loan. As a result, you may have to pay a significantly higher interest cost over the entire loan duration. Furthermore, longer tenure means you do not receive clear ownership until the entire money is repaid, which is not give you peace of mind.
Several factors play an important role when you choose between cash payment and loan. It is recommended you analyze the various factors to determine which is the most suitable option for the long run.