14 JANUARY, 2022

The decision of buying a house with cash vs. loan can be confusing. Moreover, this decision can affect our finances for a long time in the future. Therefore, it is essential to consider all the aspects before paying for the house with a loan or cash. Experts believe that a home loan can be beneficial and can help you save more, compared to using your savings for house purchase. To help you make an informed decision, here are some pros and cons of both sources of payment.

Buying a House with Home loans

You can avail a home loan from a bank or financial institution at competitive rates. The best part of home loans is, you can choose a flexible tenure and repay the loan in easy installments or EMI. Here are the pros and cons of availing a home loan to buy a house.


  • Opportunity cost

When you buy a home with a loan, you do not exhaust your savings. These savings can be used instead to invest money and earn profitable returns. With a home loan, your savings are not stuck in a home, and you can use it to grow your wealth.

  • Credit score

Home loans can help you boost your credit score. Repayment of your loan EMIs timely helps improve your score.

  • Tax benefits

You can save a significant amount of money in taxes with a home loan. As per sections 80C and 24(b) of the Income Tax Act, 1961, you can claim a tax benefit of up to Rs 1,80,000 on the principal repayment and up to Rs 2,00,000 on the interest repayment of a home loan.


  • Collateral requirement

You must furnish your property as collateral to avail funds against it. Without collateral, you cannot take a home loan.

Buying a House with Cash


  • No added cost

When you use cash to buy your home, you need not pay for home loan expenses or home loan interest rate. You pay only the cost of the house.

  • More cash flow

When you pay with cash, a portion of your monthly budget is not attributed to EMIs. You have more cash to use for the better education of your children or fulfill your other goals.

  • Faster deal closure

The house purchase process is closed faster when you pay with cash. There is no complicated paperwork involved nor do you need bank’s approval for processing of the sale deed. Sellers often prefer deals where the amount is paid in cash.


  • No tax benefits

You can avail tax deductions on home loan repayment. However, you miss out on significant tax benefits when you pay with cash.

  • Restricted liquidity

Buying a house property is expensive. When you pay with cash, you block a large amount in the property. It can restrict your liquidity and leave you with hardly any funds to pay for other expenses.

To sum up

Buying a house with loans can help you invest, get tax benefits, and leave you with enough savings to fulfill other goals. With home loans, you can buy your dream house even if you do not have enough savings. Before you apply for home loan, you must weigh both options and then proceed.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.