Taking a Home Loan has never been as easy and convenient as ever before. Loan origination has become a much simpler process and loans are processed, approved and disbursed in far lesser time than what was previously the norm. This newfound ease associated with borrowing a Home Loan has fulfilled many people’s dream of owning a house. But what a Home Loan does not do is provide for the initial down payment that you need to make upfront. Banks and NBFCs (Non-Banking Financial Companies) usually provide you with a maximum of 80-90% of the property’s value as a Home Loan but arranging for the remaining amount right at the outset is your responsibility. This is where a lot of home applicants seem to come unstuck.
You may think that arranging for the down payment shouldn’t be that big an issue; especially if the borrower has strong enough financial credentials for the loan to be sanctioned – but there is a procedure involved. Let’s say that you are seeking a Home Loan for a property purchase worth 75 Lakhs, the bank provides 60 Lakhs (80% of property value) as a loan, but you still need to pay the balance 15 Lakhs upfront. And that still, is a sizeable amount!
In the absence of any alternative arrangements for making the down payment, Home Loan borrowers often turn towards borrowing a Personal Loan for the purpose. Could you borrow a loan for borrowing another loan? As it turns out, you could! But more importantly, should you borrow a loan for borrowing another loan? The answer to this question is not as straightforward as the answer to the previous one; more so because there is no general response to this question. It differs from case to case. But if your response is in the affirmative and you have made up your mind to use a Personal Loan for making the Home Loan down payment, you may want to consider and evaluate the following factors before you take the plunge.
There is a lot to like about Personal Loans. They are quick and easy to borrow, are helpful in crunch situations and are quite convenient to repay as well. But if there’s one thing that you’d want to highlight in red, it’s the high-interest rate that they carry.
Personal Loans, being unsecured in nature, bear a very high rate of interest. The interest rates often run up to about 20% per annum which means that quite a sizeable proportion of your income goes towards interest payments, especially since you also have a Home Loan to repay at the same time. And this obviously is not a pleasant situation to be in.
However, this factor should not weigh you down if you have a strong credit rating (which would mean lenders won’t be averse to sanctioning a loan at a lower interest rate) and if you apply for Personal Loans online via financial service providers like mymoneymantra.com. With their experience and expertise at providing quality financial services to their customers, you could expect to receive Offers for Low-Interest Rate Personal Loans from India’s premier banks and NBFCs. The loans are pre-approved, require minimum documentation and are disbursed three times quicker compared an offline Personal Loan application.
If you have already started marking out areas where you could cut down on your expenditure to ensure that your Home Loan EMIs (Equated Monthly Instalments) are easily managed, then you need to think twice before you use a Personal Loan for the down payment.
A second loan would mean a second EMI payment to make every month. This would create an additional financial burden which may snowball into a full-fledged crisis if not handled well. This though would be a problem only if you expect your monthly expenditures to rise substantially in the future.
Lenders usually do not allow your EMI-to-income ratio to exceed 40%. So in all likelihood, you will only be granted loan approvals after the lenders are assured of your financial ability to manage 2 payments every month.
Managing two different payment schedules at the same time is a tricky feat to accomplish. Keeping a tab on different due dates and arranging for separate EMI payments twice every month requires skilful multitasking. It isn’t a task that is up everyone’s alley. And if you miss even a single payment, the damage to your credit score could be massive. Use your Personal Loan for a Home Loan down payment only if you are sure of your ability to handle 2 credit lines simultaneously.
As mentioned before, lenders ensure that your EMI-to-income ratio stays within 40%. Borrowing a Personal Loan will reduce your disposable income which may have an impact on the sanctioned loan amount for your Home Loan. If your personal and Home Loans EMIs together exceed 40% of your income, you’ll have to make do with a lower amount for your Home Loan.
Every coin has two sides and it is no different in this case. Using a Personal Loan for making a Home Loan down payment does have its share of drawbacks but none of them are unmanageable. With a stable stream of income and careful management of payment schedules, it could actually be a very convenient option.
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