Many times we need to buy a home but we don’t have enough money to pay the full amount of the housing property by your own. So to bridge the gap one can take a loan, by taking loan you can pay the loan amount over the years in small installments. This way it wont affect you so much as money is going in small sections.
When you think of taking loan then the very first option that comes to your mind must be Bank. Banks provide many types of loans like Personal Loan, Car loan and of course Home loan Too. Bank charges interest from you on loan, different banks charge interest at different rates. So getting home loan from a Bank is a good option but you need to do a lot of research as different banks has different rates, and ask different kind of documents from you.
The other option that is available to you and less know to most of us is Home loan from Parents or relative. Yes your parents and relatives can also provide you loan on your home and you can pay that loan in installments just like you do with Banks. And u/s 24, you can also claim tax deduction on the amount of interest paid by you to your parents or relatives on the home loan. However your parents or relatives need to pay tax on the interest received by them from you.
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To avail deduction on the amount of interest paid by you against the home loan from parents you need to get a interest certificate from your parents which specifies that your parents has provided loan to you, at what rate and for how much period.
However in case of home loan from parents or relatives you can claim deduction only on the interest paid by you under 80C. Principle amount repayment is not allowed as deduction, as such deductions are allowed only from notifies financial institutions. If you take loan from your bank then you will get tax benefit on stamp duty and registration charge too.
Lets take a look on the Pros and Cons of both type of loans :-
Pros of Home Loan from Parents or Relatives
- Can get loan at low interest rate,
- Not mandatory to pay principle amount,
- Less paper work needed, just an certificate is required from your parents and your bank statement which shows flow of money from your to parents
- Get deduction on interest paid to parents,
- Under section 24, you can claim deduction of 1,50,000 INR but u/s 80C you can get deduction of 1 Lac INR only
- No need to submit home papers with any one
Cons Of Home Loan from Parents
- Can Get deduction u/s 24 only,
- Parents need pay tax on interest received,
- No deduction are allowed on repayment of principle amount
Pros for Home loan from Bank
- Get Tax Benefits not only interest paid but on stamp duty and registration too
- Can get deduction under both u/s 80C and u/s 24,
- Get deduction on repayment of principle amount too
Cons of Home Loan From Bank
- Rates are high,
- Lots of paper work needed,
- Need to submit your home papers with banks,
- Limit is only 1L INR