Loans can help you make purchases, bridge a short-term cash flow deficit, or construct a long-term asset such as a home. Most financial institutions, including banks, non-banking finance companies (NBFCs), and housing finance companies (HFCs), offer a diverse range of loans to fulfil the diverse needs of their customers.
Customers can choose between online home loans and personal loans based on their individual circumstances. Borrowers typically seek out home loans when they are ready to make their own acquisition. A personal loan, on the other hand, may be the ideal answer if you need a little more money for a down payment.
Let us compare house loans vs personal loans in depth.
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What exactly is a home loan?
A house loan allows you to borrow the money you need to make a down payment and purchase a home without having to spend all of your savings. Banking and other financial institutions now offer a variety of house loans.
What is the purpose of a home loan?
Buying a pre-owned house or apartment
One of the most common types of house loans is for the purchase of new or used property. Many banks offer this type of loan in various forms.
Several financial institutions offer land acquisition loans. Buying land is a flexible option because the buyer has the option of saving money and building a home when his resources allow it, or simply retaining the land as an asset or investment in the long run.
Building a new house
In this case, the loan is intended for people who wish to build a home from the ground up rather than buy one that is already built. This type of loan has a special approval procedure because it takes into account the cost of the land as well.
Existing home renovation
Many financial organisations offer loans for home repair tasks such as painting, installing above water tanks, and electrical restoration, among other things.
Repairs and extensions
Banks also offer loans for house extension, which may include structural changes as well as the building of new rooms, balconies, and so on.
What exactly is a personal loan?
The bank lends money to individuals based on their creditworthiness, and no collateral is required in exchange for the loan.
What is the purpose of a personal loan?
Loans for weddings
Marriage is an important life event in India, as well as a significant financial commitment. A wedding loan from a bank could help make your big day even more memorable. Anyone in the family, including the future bride and groom, may obtain a loan to assist with wedding expenses.
Loans for travel
You can take a journey around the world and then pay off your debt with travel loans. Travel insurance is typically bundled with holiday loans, so you are fully protected.
Loans for retirement
Because pension loans are exclusively available to retired people, the regular qualification requirements do not apply to this one-of-a-kind scheme. Under this arrangement, some institutions provide 6-10x the income the retiree got the month before completing the loan request.
Other notable personal loans include:
Loan for consumer durables
Loan for Agriculture
Personal computer loan, and so on.
Personal loans provided by specific institutions may go above and beyond those listed above.
Women are more likely than men to be qualified for unique personal loan offers with various terms and conditions. A woman asking for a wedding loan at the same bank, for example, may receive different loan terms.
Home loan vs. personal loan: What you should know
A home loan, like an education loan or a car loan, is a type of secured loan. When a mortgage or other obligation cannot be repaid, banks and lending institutions may seize a homeowner’s home as collateral.
A personal loan, unlike a home loan, has no security tied to it. As a result, collateral is not required when obtaining a personal loan.
The amount at stake
There are loan sums ranging from Rs 15 lakhs to Rs 8 crores accessible. A person’s ability to repay a loan is affected by a number of factors, including income.
Personal loans are offered for quantities ranging from a few thousand rupees to as much as Rs 25 lakhs or Rs 30 lakhs if you need something more flexible. Certain banking institutions offer personal loans of up to Rs 60 lakhs.
There are several loan lengths available, ranging from five to thirty years. Loan terms are longer because of the higher purchase price of a house, which helps to keep EMIs lower.
Personal loans, on the other hand, have durations that range from 12 to 60 months.
Payments for EMIs
The EMI is the set monthly payments made by borrowers to lenders on a specific day each month for a predetermined length of time, and the payments are pre-calculated. The EMI on a house loan is cheaper than that of a personal loan for the same amount because of the longer payback duration. Personal loans, on the other hand, have a shorter repayment duration and thus a higher EMI.
Time devoted to processing
A home loan takes three to four weeks to process. However, if the relevant documents are absent or the builder lacks the requisite qualifications, the procedure may be delayed even further.
E-banking has accelerated personal loan distribution even further. For new clients, a personal loan can be approved immediately or within minutes and delivered within 24 hours.
Rates of interest
The interest rate on a house loan is lower than the interest rate on an unsecured loan since it has collateral (secured loan). The current interest rates on home loans in India range from 6.9% to 8.5%.
Personal loans or flexi Loan have much higher interest rates because they are unsecured, ranging from 9.6% to 22% depending on the borrower’s unique profile. Borrowers with low credit scores pay higher interest rates, while those with good credit pay lower interest rates.
There are tax incentives associated with home loans that assist the borrower in lowering one’s income tax liability and hence, may be repaid as per schedule by enjoying all of the tax benefits as you pay back your principal and interest, respectively, up to Rs 1.5 lakhs per year. Because personal loans do not have tax advantages, prepaying a personal loan in full or in part will have no effect on your tax planning.