In today’s time, due to increasing needs and inflation, many people take help of loans to meet their financial needs. Be it buying a house, meeting children’s education expenses, getting married or facing any medical emergency, banks and financial institutions provide various types of loans.
The most popular loan options include Personal Loan and Home Loan. But often people have a question in their mind that which is more beneficial between Personal Loan and Home Loan? If you are also looking for the answer to this question, then this article is for you.
What is Personal Loan?
Personal loan is an unsecured loan, that is, it does not require mortgage of any property. Banks or NBFCs provide loans based on your income, credit score and paying capacity.
You can use this loan for any personal need, like-
- wedding expenses
- medical emergency
- Travel
- Education
- home repair
- pay off debt
Benefits of Personal Loan
1. Quick approval
The biggest feature of personal loan is that its processing is fast. Many banks approve the loan within a few hours.
2. No guarantee required
In this you do not have to mortgage your house, land or other property.
3. Complete freedom of use
The loan amount can be used for any purpose.
4. Less documentation
Common documents like salary slip, Aadhar card, PAN card and bank statement are enough.
Disadvantages of Personal Loan
- The interest rate is relatively high.
- Loan tenure is shorter.
- EMI may become higher.
- Getting more money may be difficult.
What is Home Loan?
Home loan is a loan taken to buy, construct or repair a house. This is a secured loan, in which the purchased house is mortgaged with the bank.
Home loans are usually available for a tenure ranging from 10 to 30 years.
Benefits of Home Loan
1. Low interest rates
The interest rate on home loan is much lower than that of personal loan.
2. Long term
With a tenure of up to 30 years, the EMI gets reduced.
3. Large amount available
Banks give loans up to large amounts depending on the value of the property.
4. Tax Benefits
There is also the benefit of tax exemption on home loan under the Income Tax Act.
Disadvantages of Home Loan
- The documentation process is lengthy.
- The property is appraised.
- It may take more time to get approval.
- The house remains mortgaged with the bank.
Main differences between Personal Loan and Home Loan
| Base | Personal Loan | Home Loan |
|---|---|---|
| Security | without guarantee | property mortgage |
| interest rate | More | Less |
| loan amount | Limited | More |
| Duration | 1 to 7 years | 10 to 30 years |
| Processing Time | Quick | relatively slow |
| tax benefit | No | Available |
| Use | for any purpose | Housing related work only |
In which situation is it better to take a personal loan?
If you require a small amount and need the money immediately, a Personal Loan can be a good option.
Example:
- medical emergency
- wedding expenses
- Travel
- education fee
- minor home repairs
In such circumstances, personal loan is available quickly and does not require much formalities.
In which situation is it better to take home loan?
If your objective is to buy or build a house, then Home Loan is considered the best option.
Its main reasons are-
- low interest rates
- long repayment period
- large loan amount
- tax saving
Your monthly EMI also remains under control due to the longer tenure.
Which loan is cheaper?
Generally home loan is considered more affordable.
For example if you take a loan of Rs 20 lakh:
- The interest rate on personal loan can range from 12% to 18%.
- The interest rate on home loan can be between 8% to 10%.
Due to this difference, savings of lakhs of rupees are possible in the long run.
What things should be kept in mind before taking a loan?
check credit score
You can get better interest rates if you have a CIBIL score of 750 or more.
Evaluate EMI Capacity
Not more than 40% of the monthly income should go towards EMIs.
compare interest rates
Be sure to compare the interest rates and processing fees of different banks.
Know the hidden charges
First understand the terms like foreclosure charges, processing fees and late payment charges.
conclusion
Both Personal Loan and Home Loan have their own utility. If you need money immediately and do not want to mortgage any property, a Personal Loan may be a better option. Whereas for buying or constructing a house, Home Loan is considered more beneficial because its interest rate is low, tenure is long and tax benefits are also available.
In simple words, if the purpose is to buy a house then choose Home Loan, but for personal needs Personal Loan will be more suitable. By making the right decisions, you can reduce interest costs and maintain your financial condition.
FAQs
Q1. Which is cheaper between Personal Loan and Home Loan?
Due to low interest rate on home loan, it is generally cheaper.
Q2. Is there tax exemption on personal loan?
Generally, tax exemption is not available on personal loan.
Q3. What should be the CIBIL score for home loan?
Most banks prefer a score of 750 or higher.
Q4. Is personal loan available without guarantee?
Yes, it is an unsecured loan and no property is required to be mortgaged for it.
Q5. Which loan should one take to buy a house?
Home loan is considered to be the most suitable and affordable option for buying a house.
