Selecting the appropriate loan type is essential when taking out a loan. Home loan vs personal loan are two of the most popular financial instruments. Although both choices offer financial assistance, their characteristics and demands are different. You may make a well-informed choice that supports your financial objectives by being aware of their distinctions.
Difference Between Home loan vs personal loan
What is a home loan?
As the name suggests, a home loan is a type of credit arrangement provided by banks and non-bank financial institutions for buying, building, or remodeling a home. A home loan, in contrast to a personal loan, is secured, meaning that to obtain one, you would need to pledge an asset. The house itself is typically the collateral you pledge for a home loan.
What is a personal loan?
Banks and Non-Banking Financial Corporations (NBFCs) both provide personal loans as credit facilities. Since these loans are unsecured borrowings, you can obtain the credit facility without pledging any assets as collateral. One of the reasons why interest rates on personal loans are typically higher than those on other secured loans is because the credit facility is unsecured.
What are the advantages of a personal loan?
- Minimal eligibility criteria and documentation: The eligibility requirements for personal loans are typically relatively lenient because they are unsecured. You will typically be eligible for this type of loan as long as you have a steady source of income and a decent enough credit score. There is also very little paperwork you need to provide to get the loan.
- Zero fund restrictions: One of the main benefits of a personal loan, aside from the fact that there are no collateral restrictions, is that you are free to utilize the money any way you see fit. Indeed, you can utilize the loan amount to pay for your child’s school or marriage, to buy a fancy device, to take a vacation, or even to remodel your home.
- Quick and hassle-free application process: The ease of the application process is another advantage of personal loans. These days, it usually only takes a few minutes to finish. The majority of lenders even let you apply for a loan online, eliminating the need for physical paperwork. But that’s not all. Additionally, the loan approval and disbursal process is rather rapid, typically taking place within 24 hours of the application being submitted.
What are the advantages of a home loan?
- Low interest rates: The risk that the lender assumes is much diminished because home loans are secured borrowings. Compared to other loan kinds, you have a better chance of receiving really alluring and advantageous interest rates as a result.
- Longer tenures: Getting a home loan has numerous benefits, one of which is that the payback period is usually longer. The tenures might also last up to 25 or 30 years, depending on the lender. The monthly EMIs that you would have to pay toward the loan are essentially reduced when you choose a longer repayment period. Consequently, this can lessen your monthly immediate financial stress.
- Tax benefits: There are numerous tax advantages to taking out a home loan. You can deduct the principal amount of your home loan from your total taxable income up to ₹1.5 lakhs in a fiscal year under section 80C of the Income Tax Act, 1961. But that’s not all. Section 24b of the Income Tax Act also allows you to deduct the interest component of the loan. The deduction is limited to ₹2 lakhs if the home is self-occupied. The amount of interest that can be written off is unlimited if the property is rented out.
Conclusion
Knowing the main distinctions between a Home loan vs personal loan is essential while making this decision. Secured home loans provide reduced interest rates and tax advantages for needs pertaining to real estate. Although they have higher interest rates, personal loans, being unsecured, offer flexibility for a range of expenses. To assist you in making an informed decision according on your financial objectives, this book examines their benefits, drawbacks, and key differences.