Considerations Before Using A Personal Loan For A House Loan Down Payment

Banksonlylendupto90%ofahome'sworthasamortgage;thebuyeris responsibleforcoveringtheremaining10%aswellasanyothercosts.Canfilling thisdeficitwithapersonalloanbepossible?Propertypurchaseshavebecomemore accessibleduetothesimpleavailabilityofreadyhomes&mortgageloans.Banks onlylendupto80%ofthevalueofthepropertyasamortgage;thebuyeris responsibleforpayingtheremaining10%aswellasanyadditionalcostsrelatedto thetransaction.Yet,youmightneedtothinkaboutotherchoicesforcompletingthis downpaymentifyoudon'thaveenoughmoneysaved.

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Becausetheyareeitherdesperatetoownahomeoftheirown(theCoronavirusinducedlockdownmayencouragemorepeopletoconsiderbuyingahomeoftheir own)orwanttoavoidpayingexorbitantamountsasrent,buyersfrequently considerapplyingforapersonalloanatthispointratherthanwaitingforanother fewyearstosavemoneyforthedownpayment.Banksarequicktograntpersonal loans,givingyouaccesstoinstantliquidity,butyoushouldunderstandhow personalloansoperateandhowpurchasingonemayaffectyourfinancialsituation inthefuture.

Interest rates on personal loans

Whencomparedtohomeloans,personalloanshavesubstantiallyhigherinterest ratesbecausetheyareunsecuredloans(banksgivetheseloansbasedsolelyonyour facevalueandwithoutanyformofcollateral).Abuyercancurrentlyobtainhousing loansinIndiawithinterestratesbetween9%and11%.Personalloaninterestrates, meanwhile,arecurrentlybetween11%and24%.Thiswouldsubstantiallyraisethe priceofpurchasingyourproperty.

Onlyincaseswherethebuyerhasnootheroptionsarepersonalloansadvised.With theirhigherinterestrates&shorterpaybackterms,theycanmakecustomersfacea greaterfinancialhardship.Onlythosewithastrongcredithistoryandconsistent incomecangetpersonalloanswithlowerinterestrates.Hence,ifapersonalloanis yoursolechoice,keepadecentcreditscore,advisesaseniorsourceinatopMumbai fintech,onconditionofanonymity.

Impact of personal loans on credit score

Ifapersonchoosestouseapersonalloantomakeadownpaymentonahome,this willalsohaveaneffectonhiscreditworthiness.Becauseyouusedsomeofyour creditworthiness&repaymentcapacitytoobtainthepersonalloan,thiswillhavean impactonthesizeofthemortgagethatthebankisreadytogrant.Generally,you shouldn'tutilisemorethan40%ofyourmonthlytake-homepayforEMIpayments.

EMI calculation for a personal loan and a home

Let'ssayyou'vedecidedonahomeworthRs.50lakhs.Duetoyourexcellentcredit andpromptrepaymentofallpreviouscreditcardloans,thebankiswillingtogrant youahousingloanofRs45lakh(90%ofthepropertyvalue).Duetothefactthat youarealong-timecustomer,thebankislikewisewillingtomakeanexceptionfor you.

Ataninterestrateof8%,theEMIfora20-yeartermcomestoRs41,822.

Forthedownpayment,stampduty,andregistrationfees,younowneedRs8lakh. Youobtainapersonalloanforthis.

The EMI equals Rs 17,394 for a five-year term at an interest rate of 11%.

Hence, your monthly EMI expenses will be Rs 59,216.

YourmonthlyincomemustbearoundRs1.48lakhforalendertograntthesetwo loanswithacombinedEMIofRs59,216(thetotalofallyourEMIsmustbemore than40%ofyournetmonthlyincome).

Itisimportanttorememberthatthetwoloanswouldseverelyrestrictyourability toborrowatthisstage.Youmightnotbeabletoobtainanyotherloanintheevent ofanemergency.

Tax advantages for personal loans

Taxdeductionsforpersonalloanstakenoutforspecificpurposes,suchashouse remodelingoracquisition,arepermittedbytheIncomeTax(IT)Act.Buyersmay claimdeductionsforinterestpaidonpersonalloansunderSection24(b)ofIndia's IncomeTaxLawifthefundsareusedtopayadownpaymentonahome.Refunds forself-occupiedpropertiesarecappedatRs2lakhsannually.Evenifyouusethis moneytorenovateyourhome,thisstillholdstrue.Thetotalamountofinterest couldbededucted,nevertheless,ifthepropertyisrented.

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