5 Things to Consider When Using a Personal Loan for Home Loan Down Payment

Purchasing a home that you can call your own, is the dream of every India regardless of the social strata one belongs to. Considering the fact that the cost of a home may often mount to a few lakhs, and in some cases, even a few crores of rupees, a vast majority of homebuyers need financial assistance to give shape to their life-long dream. This assistance comes in the form of a Home Loan, wherein a bank, a non-banking financial company (NBFC), or a Housing Finance Corporation (HFC), come forth to assist with 80% to 90% of the payment towards the purchase. The remaining 10 to 20% of the amount, which is often known as the down payment is slated to be arranged by the home buyer. As mentioned above, the cost of a home usually ranges into lakhs and crores of rupees, which implies that even the seemingly small amount of down payment is often too high.

While some people tend to save right from the very beginning of their careers for the down payment of their dream home, others often struggle with their monthly bills and find it hard to set aside any money. In case, where prospective home buyers don’t have any savings to dig into, an effective way to fund the down payment, is by procuring a Personal Loan.

While a Personal Loan is relatively easy to get and offers the freedom of use of the disbursed amount, there are a few aspects that need your due diligence, especially when you are Taking a Personal Loan for the Home Loan down payment.

• The Cost of Personal Loans

Since Personal Loans can be procured without pledging any asset in lieu of the loan amount, they attract a higher rate of interest often ranging from 11% to 22%, which is significantly higher than the 8.5% to 10.5% interest in case of Home Loans. Hence, you must be aware of the cost that you will have to bear over the years, especially if your tenure is long and your interest outgo is significantly high.

• The Impact on Your Credit Rating

Taking two significant loans, namely Personal Loan and Personal Loan both within a short span of time will imply that your finances are not in order and that you are highly depended on credit to accomplish your financial goals. The credit bureaus will consider this as a limiting factor, which may lead to a blow in your credit score.

• The Effect on Your Living Expenses

Taking two loans at a time will mean that you will be paying the equated monthly instalments (EMIs) for both the loans simultaneously. Considering that both the loans are of a significant amount, you must understand the EMI outgo per month would be rather high, thus putting some strain on your personal finances, to the extent that you may need to cut back on your living expenses. To this end, it is best if you talk things through with your family, and prepare them for the times ahead.

On the flip side, if your overall EMI outgo is higher than 40% to 50% of your monthly income, your loan application may be turned down. In this case, while you may get the Personal Loan, getting your Home Loan application approved may become trickier than your imagined. To avert such a situation, we recommended you discuss the matters in detail with a financial advisor, and tread the waters carefully.

• Tax Benefits

Now here’s where you can get some much-needed relief. Provided that you can prove that you used the Personal Loan amount towards your Personal Loan down payment, you will be entitled to enjoy a tax rebate of up to Rs. 2 Lakhs per annum, on the interest paid towards the mortgage. The same will hold true for your Home Loan as well. In that case, you will also be entitled to a tax benefit of Rs. 1.5 Lakhs per annum towards the repayment of the principal amount.

• Savings

It is a thumb rule for one an all to maintain an emergency fund, which is up to 6 months’ worth their families daily expenses. In a vast majority of cases, home buyers dig in through this fund to arrange the requisite down payment. If your credit score is good, and you can manage to repay two loans simultaneously, it is better to opt for a Personal Loan, than to do away with every last bit of your savings, After all, you must always save for the rainy days. However, before making the final call, do all the necessary calculations, and make sure that you or your family do not have to suffer due to the added onus of servicing two loans at once.

Thanks to the genuinely multipurpose nature of Personal Loans, it is rather convenient to use the loan amount procured to make the much-needed Home Loan down payment. So, what are you waiting for? If you enjoy a good credit score and can pledge to maintain the required level of financial discipline in the long term, get in touch with your chosen lender, and avail a Personal Loan today!

Also Read: Using a Personal Loan for Making a Home Loan Down Payment?

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