Personal Loan vs Home Loan: Which one to pick?
Loans are the easiest way to get your needs met without burning a hole in your pocket. Availing of a loan with good interest rates can help avoid a lot of stress and worry. When it comes to loans, personal loan and home loan are the two popular loans that are availed by many. if you have your doubts on personal loan vs home loan and wondering which one would be the best for you to opt for, then this space will give you clarity on the same.
Before we could jump right into understanding the difference between personal loan vs home loan, let’s get clarity on the loan types separately.
What is a personal loan?
A personal loan is a loan type in which the loan is sanctioned without collateral or security. Personal loans require very less documentation work. A personal loan can be used for any purpose, be it for any purchases, education, marriage, or any other personal need. The personal loan availed can be paid back in monthly installments.
Benefits of a personal loan
- Instant credit: The biggest advantage of getting a personal loan on EMI is that the loan money is sanctioned immediately. Since there is also little to no documentation work, it is a quicker process of availing a loan.
- Free usage: The personal loan availed can be freely used for any purpose. Be it educational, purchase needs, travel needs or anything else, personal loan can be availed and used without any restrictions.
- Easy repayment: Since, personal loans offer a flexible repayment plan, you can easily pay back your personal loan on EMI.
- Collateral is not typically required: Borrowers who require unsecured personal loans do not have to pledge any collateral to borrow money. In a nutshell, there is no need for collateral in the case of personal loans compared to home loans.
- Helps to build a credit history: You establish your credit history every time you take out a loan. Instant Personal loan lenders report your payment history to Experian, Equifax, TransUnion, or all three major credit bureaus. Consistently repaying loans on time will help you establish a solid credit history and raise your credit score.
Tax benefit
A personal loan is one of the easy methods to avail of finance for several purposes. Generally, personal loans are not taxable since it is not a part of income while filing income tax returns. However, it is vital to avail yourself of a personal loan from credible sources or financial institutions, as loans from other sources will be considered part of your income. In the later sections, we will discuss difference between home loan and personal loan.
It is vital to understand both the terminologies and process to determine and choose between a personal loan vs home loan.
There are several personal loan tax benefits, depending upon the end use of the loan amount.
They are for several purposes, like education, purchasing or renovating your house, and business expansion. Personal loan tax benefits are under the Income Tax, which comes with tax deductions for specific loan purposes.
We have listed several cases where personal loan tax benefits can be availed, which are as follows:
- Invest in business: The interest paid on a personal loan used for business purposes may be deducted from income. The interest paid can be claimed as an expense by the borrower. As a result, both the borrower’s tax obligation and the invested capital company’s net taxable earnings will decrease. The sum that may be claimed in this instance has no upper limit. In a nutshell, it will reduce the tax liability of the borrower. It is the first case where the borrower can avail of a personal loan tax benefit.
- Investment for the purchase/ construction of a residential property by the borrower: If a borrower utilized their loan funds towards the acquisition or building of a residential property, they might be eligible for personal loan tax benefits. Under Section 24 of the Income Tax Act of 1961, the borrower may receive personal loan tax benefits for paying back interest on the loan. The borrower must be the property’s owner to receive personal loan tax benefits.
- Investment in assets: The third and last case in which one may qualify for tax deductions under the program is when the borrowed funds were used to invest in assets such as jewellery, non-residential real estate, stocks, shares, and more. The acquisition cost would be increased, but the borrower would not be able to claim the deduction in the same year the interest is paid. It is crucial to remember that the tax deduction will only apply to the interest paid, not the principal loan amount. No tax benefits will be given on the personal loan if it has been requested for any other reason than those listed above.
How to apply for personal loan?
Our step-by step guide will offer valuable insights on how to apply for personal loan. By filling out the online application form and conforming to the financial institutions’ guidelines, terms and conditions, you will know how to apply for a personal home loan successfully.
As a salaried applicant, you can apply for a instant personal loan by signing up with the Zest Money credit limit. It’s incredibly easy to apply for a ZestMoney credit limit. You only need to confirm your mobile number to proceed.
- Set your credit limit to active: To activate your credit limit, submit your profile, provide the necessary KYC documentation, and schedule your repayment.
- Purchase from merchant partners: You can use your credit limit at any of our shops with more than 1000+ merchant partners.
- Qualify for a personal loan: You will be qualified to use our platform for an instant loan if you make regular payments after making purchases through one of our merchant partners.
- Avail a personal loan: If you are qualified, you can obtain a personal loan without providing any more paperwork. These are the following steps on how to apply for a personal loan.
Hope the above-mentioned guidelines, gave your valuable insights on how to apply for personal loan.
Learn more about the different types of personal loans before applying for it.
Personal loan interest rates:
You can avail personal loan for several financial requirements. There are several banks in India, that offer best personal loans to their customers. However, you must check the personal loan interest rates before you avail them. Here we present the current personal loan interest rates, that are as follows:
Bank | Interest rate |
HDFC Bank | 10.5% – 21.00% p.a |
HSBC Bank | 9.50% – 12.50% p.a |
Kotak Mahindra Bank | 10.25% and above |
Punjab National Bank | 7.90% p.a |
Axis Bank | 12% – 21% p.a |
State Bank of India | 9.60% – 15.65% p.a |
(Source: Bank Bazaar)
What is a Personal loan EMI Calculator?
The personal loan EMI calculator is a tool that you may use to determine the monthly payments you must make to take out a personal loan. You can use this tool to find your monthly EMIs by providing a few simple facts to the calculator. To accurately calculate your loan EMI, you must enter the loan amount, tenure, and interest rate into the calculator. The personal loan EMI calculator plays a pivotal role, in determining accurate amount. This calculator plays an integral part in understanding to make the right choice among personal loan vs home loan. You can use ZestMoney’s EMI calculator to get the most accurate EMI amounts.
What are the features of ZestMoney’s Personal loan EMI calculator?
There are several options to avail personal loan on EMI. It is an effective tool that will help you calculate the amount appropriately.
- Time-saving: With a personal loan EMI calculator, you can accurately calculate personal loans in EMI.
- Simple comparisons: You may quickly and easily compare using an EMI calculator. Yes, you can evaluate various banks at once and learn about the various EMIs each one offers.
- Accuracy: One can gain precise statistics or information by using an EMI calculator. Without this useful tool, you are more likely to make mistakes.
What are the personal loan eligibility criteria?
It is vital to understand both the terminologies and process to determine and choose between a personal loan vs home loan.
- The typical requirements include age, occupation, income, ability to repay the loan, and location, albeit these differ from bank to bank.
- Whether you are a professional, self-employed businessperson, or salaried worker, you must have a consistent source of income to apply for a personal loan. The business you work for, your credit history, etc., all impact a person’s eligibility.
- The above-listed factors are pivotal in determining the personal loan eligibility criteria.
What is a home loan?
A home loan is a secured loan that uses collateral to help the borrower acquire or pay for a piece of property. Home loans offer long-term, high-value financing with affordable interest rates. They are repaid through EMIs.
With a home loan, you consent to take out a certain amount of credit from your lender—a bank, credit union, or private lender—and return it over time. Depending on the conditions of your contract, you could have to repay your mortgage or home loan on a monthly or bi-monthly basis. We hope, you got a better picture of what is a home loan.
In the later stages, we will discuss several concepts to gain insights into personal loan vs home loan.
What is top-up loan on home loan?
Are you wondering what is a top-up loan on home loan? Here we will discuss in brief, what is top up loan on home loan.
Banks offer top-up loan on home loan, housing finance firms, and other financial institutions that let you borrow money above and beyond your house loan in a specific amount. The banks will approve the top-up loan on home loan, if the credit score is favourable in exchange for a processing charge. We hope, it is clear, what is top up loan on home loan.
What are the benefits of a home loan?
As discussed in the above sections, you would have understood several criteria, and eligibility of personal loans. A home loan is a secured loan that uses collateral to help the borrower acquire or pay for a piece of property. Home loans offer long-term, high-value financing with affordable interest rates. They are repaid through EMIs. Let us dive into the topic, to understand the benefits of home loan.
The difference between home loans and personal loan, will be discussed in detail, however, it is vital to understand several benefits of home loan, which are as follows:
- Minimal Interest Rate: The decision to purchase a home must be made over ten years, and there may be numerous cycles of rising and falling interest rates. As a result, you may be sure that you will profit from declining rates at some time during the cycle.
- Capital Appreciation: The potential of mouth-watering capital appreciation is the prime motivation for purchasing a home for any of us who has witnessed the rise in real estate prices over the past five years.
What are the home loan tax benefits?
Understanding the terms and procedures is essential when deciding whether to get a better option: personal loan vs home loan. There are several home loan tax benefits offered by institutions and government.
Taking a home loan can help you save tax per the Income Tax Act, 1961. For everyone, owning a home is a dream come true. The Indian government has consistently demonstrated a strong propensity to encourage people to invest in homes. Here we present some of the home loan tax benefits, which are as follows:
- Deduction for interest paid on home loan: Each borrower who takes out a house loan with two or more others may deduct up to Rs. 2 lakh of interest payments. For amounts up to Rs. 1.5 lakhs per loan, tax can also be deducted from the principle that has been paid.
- Deduction on principal amount: Section 80C permits a deduction for the principal component of the EMI paid throughout the year. Up to Rs 1.5 lakh can be claimed as the maximum amount. However, the house property must not be sold within five years of occupancy to qualify for this deduction.
- Deduction for stamp duty and registration charges: Under Section 80C, a deduction for stamp duty and registration fees can also be made in addition to the deduction for principal repayment, but only up to a total of Rs 1.5 lakh. It can only be claimed in the year that these costs are incurred, though.
What are the home loan interest rates?
Several banks and financial institutions, offer home loans, as it is a sense of achievement, and a dream for people, to buy their home. However, it is vital to check the home loan interest rates, offered by several financial institutions.
Following are the home loan Interest rates of banks – 2022, which are as follows:
Banks | Starting Interest Rate |
Kotak Mahindra Bank | 7.50% onwards |
Union Bank of India | 7.90% onwards |
State Bank of India | 8.05 % onwards |
LIC housing Finanace | 7.55% onwards |
Standard Chartered Bank | 7.25% onwards |
Aditya Birla | 8.00% onwards |
What is the disadvantages of home loan?
Here we present you some disadvantages of home loan, before you avail home loan requirements. These disadvantages of home loan, are discussed in detail, for you to make a right decision, between personal loan vs home loan.
- Long-term commitment: A home loan has the additional drawback of a lengthy payback period. People are prohibited from taking on new debt at this time because they must use their real income to pay off existing debt. Therefore, one must be ready for a long-term commitment before choosing this loan.
- Loss of a profitable opportunity/ return on investment: One of the biggest drawbacks of home loans is lost opportunities. It is impossible to anticipate making money with a mortgage. The same sum can yield a high return rate if invested in another financial asset. It’s an opportunity that plenty of people overlook.
What are the Home loan eligibility criteria?
Home loan eligibility is outlined as a set of standards based on which a financial institution determines a customer’s ability to obtain and repay a specific loan amount. Mentioned below are the other factors that play a role in determining the eligibility to apply for a home loan. These requirements differ from one financial institution to another.
- Monthly income
- Age
- Credit score
- Fixed monthly debt
- Credit history
- Cost of the property
- Retirement age, etc.
How to apply for a home loan?
With our step-to-step guide, we will make the process simple for applying for a home loan.
Step 1: Fill out the PNB loan application form and attach the required documents.
Step 2: Payment of the processing fees.
Step 3: Discussion with the bank regarding your requirements and financial statements.
Step 4: Valuation and sanction process of documentation.
Step 5: Validation of the offer letter and processing of the property papers followed by a legal check.
Step 6: Site estimation and finalising the loan deal.
Step 7: Signing the agreement and loan disbursal.
Personal loan vs Home loan – Understanding their key differences
Personal loan vs home loan, which one is better? It is a frequently asked question.
Both personal and home loans offer one-time, lump-sum payments that must be repaid in instalments over a predetermined period. But the primary distinction is that home loans are a particular kind of secured loan in which the borrower’s house is pledged as security. Contrarily, personal loans are a broader and more diverse category that can be secured or unsecured by collateral.
We will answer your question of personal loan vs home loan, which one is better, by classifying the major differences, which are as follows:
Parameters | Personal loan | Home loan |
Loan structure | One of the major differences between a personal loan vs home loan. Several secured personal loans can be backed by collateral, such as a certificate of deposit, stocks and many more. | A major difference is the loan structure; while comparing personal loan vs home loan. With a home equity loan, you can borrow money while using the value of your house—more specifically, the equity—as security. |
Purpose | The purpose determines personal vs home loan. Personal loans can be utilized for various purposes, such as paying off high-interest debt, consolidating credit card debt, covering huge purchases (like a big home appliance or a trip), or even creating or raising your credit score. | A major difference is the purpose when comparing personal loan vs home loan. Home equity loans can also be utilized for various purposes, such as consolidating debt, paying for major one-time expenses, or paying for medical or educational costs. |
Collateral | There is no need for any security or collateral. A personal loan does not come with any security, unlike a mortgage. Thus, there is no requirement for collateral while obtaining a personal loan. | A home loan is a secured loan like an education or vehicle loan. Banks and lending institutions may utilise the residence as collateral when a mortgage or other obligation cannot be repaid. Home loans cannot be taken without security. Collateral is the major difference between personal loan vs home loan. |
Interest rates | Interest rates can determine personal loan vs home loan. A personal loan’s interest rate may be fixed or variable, lower than the rate on a credit card but typically greater than the rate on a home equity loan (especially in the case of unsecured personal loans). Rates for personal loans are also influenced by credit score. There is a probability that the borrower will receive lower interest rates if their credit score is greater. | A major difference is the interest rates when comparing personal loan vs home loan. Interest rates on a home loan are typically fixed. Depending on the period, the borrower’s home equity, and credit history, interest rates for home equity loans can range from as little as 6.2% to 8.5%. |
Repayment terms | Personal loan vs home loan, which one is better, is determined by repayment terms. Depending on the amount borrowed and the organization’s policies, the maximum term for personal loans may also be longer. The typical personal loan repayment time ranges from a few months to five years. | Personal loan vs home loan can be chosen, depending upon the repayment terms. The terms of a home loan could be around five to thirty years. Home loans have longer terms since they are expensive purchases, and longer terms lower monthly interest rates. |
EMI | A major difference is the EMI when comparing personal loan vs home loan. Equated Monthly Installment is referred to as EMI. It is a fixed payment amount pre-calculated and made by the borrower to the lender on a particular day every month for a specified time. While comparing personal loan vs home loan, Personal loans have a shorter repayment duration, so the EMI is higher. | Home loans have a lower EMI amount for a certain amount than a personal loan because a borrower can repay a home loan over a longer period. EMI plays a major role, in understanding the concept of personal loan vs home loan. |
Processing time | The major difference is the processing time when comparing personal loan vs home loan. The time it takes to disburse a personal loan has decreased even further due to the e-KYC procedure and technological advancements. Personal loans can be authorised immediately (for current customers) or quickly (for new customers) and can be disbursed within 24 to 48 hours. | Processing of home loans typically takes 3 to 4 weeks. If the necessary paperwork is missing or the builder lacks the credentials, the process could be further delayed in some situations. |
On the whole, the loan which you would like to avail yourself of depends on your needs. It is best to take a personal loan as it can be used for any purpose. If you are planning to get a house then avail a home loan as it can come with its own benefits.
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