The importance of buying a home is different for people at different stages of life. To those nearing retirement, the prospect of living a life free of debt feels tempting. On the other hand, empty nesters consider selling their large family homes to shift to smaller accommodations or buy a new one for investment purposes. Similarly, homeowners who have lived in a house for long enough consider investing in a modern home to match the pace of the world around.
Irrespective of their life stage, there is always a dilemma about the mode of payment. Some consider cash to be the best option for buying a home, while others prefer paying a home loan EMI.
If you are also planning to buy a house, you could be facing the same dilemma. Every coin has two sides, so does payments in cash and loan.
Here are the pros and cons of these two payment methods of buying a new house:
When you opt to borrow a home loan, you should have a good credit history. Higher credit score usually means quick loan approval and high eligibility. If you don’t have a credit history, a home loan EMI can also help you build it along the way.
In cash payments, you may not require any credit history, nor does it help in building one.
Every payment comes with its set of financial risks. When you take a home loan EMI, you have to plan everything, including your monthly expenses, to avoid financial burden later. Although, you can reduce it by choosing lesser home loan EMIs. Sometimes, you might have to pay penalties for late payments.
On the other hand, cash payments do not have such risks. Since real-estate costs are sky-high, it might be difficult to arrange that amount. For instance, in a metro city in India, the average price of a 2-BHK house can be more than Rs 70 lakhs depending on the location. It may be difficult to arrange a huge amount in cash.
When you take a home loan EMI, you may have to submit collateral for securing the interest of your lending bank. However, cash payments do not have any such requirements.
When you make a cash payment, after little paperwork, you can become the owner. However, in case of a home loan EMI, it requires a comparatively more paperwork.
Even though you get instant ownership with cash payments, a home loan EMI is a safe option to choose as it will also give you tax benefits and secure your payment process throughout.
A home purchase in cash comes with a smooth documentation process while taking a home loan EMI is little complicated unless you choose a renowned bank.
Here are some pros and cons of cash payment and home loan:
The ultimate choice between these two payment modes must be based on your affordability. If you prefer opting for a home loan, make sure you select a renowned bank like Axis Bank whose home loan application process is quite simple.