Difference between Home Loan and Personal Loan
Primarily, borrowers choose a home loan to buy a house and a personal loan for all kinds of expenses such as a wedding, the down payment for a home or car, education fees, medical costs or home improvement. The major difference between a home loan and a personal loan is that a personal loan is unsecured, which means it doesn’t require collateral.
Banks and non-banking financial companies such as Bajaj Housing Finance Limited offer both home loans and personal loans. Depending on your requirement, you can select a personal loan or a home loan.
In a home loan, the borrower’s house is considered as the collateral. Defaulting on the repayment of home loan may lead to the borrower losing his or her home. However, a home loan offers a higher loan amount and a longer repayment tenor.
As a personal loan is unsecured, lenders offer a much smaller amount in comparison, which makes it difficult to buy a house with one. The repayment duration of a personal loan is also much shorter. This is why borrowers usually use the personal loan for other expenses such as new décor or other improvements after purchasing the house or for other unrelated needs.
Benefits of a home loan
Banks and NBFCs provide home loans to salaried and self-employed Indian residents who have a good repayment history. Resident Indians can avail home loans in India for buying a house. NBFCs/ Banks offer up to 80-90% of the home value as a loan. Borrowers of home loans also qualify for tax deduction on the repayment 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
Home loan interest rate
The interest rates for home loans affect how comfortable repayment is for you. Lenders normally charge an interest rate for home loans at a few basis points lower than the interest rates for other loans such as those for land purchase. Although the lender charges an additional processing fee for home loans, they may offer slightly different rates to you based on your financial profile.
Also read: How to apply for home loan