Why Taking the Loan from A Family Member A Better Option?

Dev Singhraha

Relocation Expert

Buying a house or a property is an expensive investment, and it becomes even more of a piece of baggage when you take the loan from banks. Even with the reduced interest rates and the monthly EMI option for as long as 15 to 20 years, the repayment is still expensive.

Rather than contacting a bank for the loan, a buyer can take the loan from their family members. Not only it is much safer, but there are also many benefits of the same that the buyers are not aware.

We discuss them all below

The first and the foremost is the reduced paperwork. When a buyer goes to the bank and applies for a home loan, he has to go through a substantial amount of paperwork. The entire process of applying for the loan to granting of the loan can be a lengthy process and can take months. Taking a loan from the family member can be quick and does not involve a lot of paperwork. But for safety reason, we advise you to take the help and advice of a lawyer, so there are no discrepancies in future.
Banks often go through your credit score before giving out a loan. If you have defaulted on a loan payment in the past or have an unpaid outstanding loan, there are chances that they may charge you higher interest or not approve your loan application at all.
Income Tax law in India allows a person to avail the deduction against the interest and the principle he pays. The borrower can claim the deduction for Rs 2 lac principle amount and Rs 1.5 lacs for the interest paid. Many are not aware that they can claim for the deduction if they take the loan from their family members too. Under Section 80C of IT laws, a borrower can claim for the deduction on the principal amount of the loan is taken from the bank. Nothing is mentioned about the interest that you pay under the Section 24. This gives one the benefit of the doubt and the borrower can claim the tax deduction under the same. If no interest is paid to the family member, then the buyer cannot claim for the reduction in the interest.
When you take the loan from the bank, the papers for the property you are taking the loan for, stay with the bank till the time the entire loan has been repaid with interest. If in any case, the borrower fails to make any payment, or have not been able to make any payment under the stipulated time frame, then the banks are free to take the necessary action. This is always the risk involved when taking the loan from the bank. When you take the loan from family members, none of this applies. It is with the mutual understanding that one has among them.

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