Banks and non-banking financial companies such as Bajaj Finserv offer both home loans and personal loans to their customers. Depending on their requirement customer can select whether they need a personal loan or a home loan. Primarily, applicants go for a home loan when they are ready to buy a house. On the other hand, a personal loan can be very useful when some extra cash is required to pay for a down payment.
The major difference between a home loan and a personal loan is the personal loan is unsecured. That means the lender does not ask for a collateral. For a home loan, the lender will usually use the borrower’s house as the collateral. Therefore, defaulting on the EMI of a home loan may lead to the borrower losing his or her home.
As the personal loan is unsecured, lenders offer a much smaller amount, which makes it difficult to buy a house with one. Therefore, borrowers usually use the personal loan for other expenses such as new furniture for decorating or other improvements after purchasing the house.
Banks and non-financial companies provide home loans to salaried and self-employed Indian residents with ages 21 years and above, and who have a good repayment history. Resident Indians can avail home loans in India for buying a house. NBFCs/Banks offer up to 80 percent of the home value as a loan to applicants of home loans. Borrowers of home loans also qualify for tax deduction on payment of the principal amount under Section 80C of the Indian Income Tax Act, and for the interest component under Section 24(b) of the Indian Income Tax Act.
Additional Read: Know the Income Tax Benefit on Home Loan
Banks and other lenders charge interest rates for home loan. However, they charge interest rates a few basis points lower than the interest rates for other loans such as for land purchase. Although the lender charges an additional processing fee for home loans, they may make some minor differences based on the profile of the borrower.
Also Read: How to Apply for Home Loan