There is no doubt about it that being a borrower is not easy. You have to keep in mind so many dos and don’ts. Moreover, there would be the burden of returning the amount to the banks. There might as well be a situation where you and your spouse can manage to gather the required sum of money in order to buy the property of your choice without lending it from the bank. What should you do in such a situation? It would naturally be a hassle free affair if the transaction is done without the involvement of a bank. But would it turn into a judicious decision when considered in the long run? Or is it always advisable to take a home loan? If yes, why so? Here are the reasons:
You never know when you would be requiring your liquid money for some unforeseen emergency. That is why, you should not pump all your liquid money into an illiquid asset, lest you find difficulty in arranging for cash in times of difficulty. The home that you are buying may be worth a million, but it would remain an illiquid asset unless you are reselling it, which again is a time consuming affair and hence your money would not be readily available to you when you would need it. That is why; it is never a good idea to invest all your money in immovable assets.
If you are taking a home loan, you can enjoy tax deductions on the principal and interest paid against a home loan. In India, for the repayment of the principal component, a borrower can claim deductions under Section 80C of the Income Tax Act. The deduction limit, in this case, is set at Rs 1.5 lakh. Whereas; Section 24 of the Act, allows borrowers to claim deductions on repayment of the interest component. The deduction limit here is set at Rs 2 lakh. When you buy a house without taking a home loan, you are letting go of these benefits, too.
Moreover, the value of the property that you are buying by using the bank’s money is eventually going to rise higher. So, this increased sum of money would be would be enough to make up for the interest you have been paying on the loan. However, the spare cash at your hand you could be invested in another property, in case you wish to. You have multiple investment options as long as you have liquid money in your bank account. But all these options fade away when you pour all the money in an illiquid asset.
It might sound bizarre but it is a proven fact that a borrower learns to live a more financially prudent life. This is so because the burden of repayment of loan stops a person from the reckless expenditure.
Lastly, in the modern generation, it is always smarter to use your credit cards in making payments as this fetches more discounts. A good credit record also comes handy while taking a home loan because, in case you have no credit record, the bank may not find it comfortable in lending to you.
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