Are there any Disadvantages for Not Availing Home Loan?
Oct 03, 2018 Home Loan
Nobody likes to be on debt when you have enough money to buy things. We all are aware that lenders have several clauses and restrictions that borrowers have to agree. Purchasing a property means quite a good amount of investment. What if you have enough savings to buy a house without availing home loan?
Let’s understand what could be disadvantageous for not availing home loan; you can decide whether to avail home loan.
Let’s understand what could be disadvantageous for not availing home loan; you can decide whether to avail home loan.
Property is an illiquid asset
Investing in property no doubt has the best return on investment (ROI). However, it is an illiquid asset; so, pumping in a lot of liquid amounts is not a good idea. In an emergency situation when you need cash, even if it is worth millions home selling will not be an easy way as the whole process itself is time-consuming. Therefore, investing your entire savings in a fixed asset is not a good idea.
Tax Benefits for Home Loan
Borrowers in India can claim up to INR 1.5 Lakhs deductions for the repayment of the principal amount under Section 80C of the Income Tax Act. Tax deductions can be claimed on the principal as well as the interest paid against a home loan. On the other hand, you can claim deductions on repayment of the interest component as per Section 24 of the Act. This benefit has a cap of INR 2 lakh deduction limit.
Smart Investment
If you decide to take a home loan, you will not have to invest your entire savings. Rather around 20 percent of the principal amount what required for you to pay initially. With time, the property value will increase. The Interest that you pay to your borrower will be covered eventually. So, you get to enjoy the benefit of other’s money being invested on your behalf. The remaining amount of your savings, if you still want to invest, can be invested in buying another property using the same principle.
Reckless Spending
If you compare to people, one who is a borrower and one who is not the latter tends to spend more on unimportant things due to fewer liabilities. The regret feeling would always be there for unnecessary spending, however, without any restrictions financial management is less likely to be great.
Credit Record
In this digital world, paying for everything with money in your pocket is not considered to be high thoughts anymore. Use of credit card, for instance, brings in lots of advantages. You get discounts on numerous occasions, such as movie tickets. Timely bills payment will fetch you good credit score which can be used in future for any loans.
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