Is Personal Loan For House Down Payment Right or Wrong?

Is getting a personal loan for the down payment of your home loan is the right choice to make? There are various things you should know before taking any decision. Read to know more.

19 Dec,2022 12:59 IST 150
Is Personal Loan for House Down Payment Right or Wrong?

Most families desire to have a house of their own and a home loan is one of the best ways to fulfill this dream. Most banks and non-banking finance companies will finance up to 80-90% of the cost of the house. The rest of the money, also known as down payment, must to be provided directly by the loan applicant.

In many cases, the home loan applicant may not have ready access to a large amount of cash to make the down payment. They have the option to borrow from moneylenders at very high interest rates or take personal loans.

What Is Personal Loan And How It Works?

A personal loan is offered without any collateral and there is no restriction on the end-use of the funds. Personal loans are easy to get and require minimal documentation. But a personal loan is provided at a higher rate of interest than secured loans such as home and auto loans because it is unsecured.

A personal loan can be used for almost anything and is an effective solution in many different situations. Some lenders might inquire about the loan’s objective, but the majority would not ask a borrower with a strong capacity for repayment. So yes, personal loan can be used to make down payment for a house.

Benefits Of Using Personal Loan For Down Payment

A personal loan provides instant access to money with adjustable payback terms. It helps to take a personal loan for down payment of house as a borrower does not need to dip into emergency funds or appeal to others for advances.

If money is being used to pay for a house, buyers are eligible for deductions on the interest paid on any loan under income tax laws. This benefit will, therefore, also apply to a personal loan used as a down payment for a home. This means that a person can deduct up to Rs 2 lakh in interest payments from his or her income each year. This amounts to roughly Rs 60,000 in annual tax savings, assuming a 30% tax band. This benefit is for a self-occupied property and is valid even if you use the funds for home renovations.

Challenges In Using Personal Loan For Down Payment

The rate of interest on a personal loan is higher than on most secured loans. But prospective borrowers can always check for banks and non-banking finance companies (NBFCs) that offer the best possible rate.

If a borrower chooses to use a personal loan to cover their down payment on a house, this will also have an effect on their creditworthiness. The amount of a house loan that the bank would be willing to offer will be impacted by the borrower’s decision to obtain a personal loan.

Conclusion

Whether to take a personal loan for the down payment of house would depend on the circumstances. Most of the tax benefits that home loans offer are also applicable on the personal loan used for down payment.

As long as a person has the capacity to repay installments for both a home loan and a personal loan, it does make sense to go for it. The only two things to check when deciding whether to take a personal loan for a house down payment are repayment capacity and interest rates.

Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

Most Read

Check the Difference Between 24k and 22k Gold
9 Jan,2024 09:26 IST
52440 Views
Like 6241 6241 Likes
Franking and Stamping: What’s the difference?
14 Aug,2017 03:45 IST
46641 Views
Like 7682 7682 Likes
Why Gold Is Cheaper In Kerala?
15 Feb,2024 09:35 IST
1859 Views
Like 4207 1802 Likes
Personal Loan With Low CIBIL Score
21 Jun,2022 09:38 IST
29029 Views
Like 6492 6492 Likes

Get in Touch

By clicking on Apply Now button on the page, you authorize IIFL & its representatives to inform you about various products, offers and services provided by IIFL through any mode including telephone calls, SMS, letters, whatsapp etc.You confirm that laws in relation to unsolicited communication referred in 'National Do Not Call Registry' as laid down by 'Telecom Regulatory Authority of India' will not be applicable for such information/communication.
I accept the Terms and Conditions