Difference Between Home Loans and Personal Loans: Which is better?

Lenders offer different types of loans, including secured loans, such as Home Loans, and unsecured loans, such as personal loans. While borrowers can avail of personal loans to handle small-term goals, they can take Home Loans to facilitate the purchase of their dream home. 

This article discusses in detail the difference between Home Loans and personal loans. So, read on.

What is a Home Loan?

A Home Loan is a secured loan, therefore, the interest rate on these loans is low and lenders also give borrowers the flexibility to pay these loans over a period extending up to 32 years. Further, Home Loans also come with certain tax benefits. These reasons may have made Home Loans popular over the last few years. Homebuyers take Home Loans to fund the purchase of their home. One can avail of a housing loan to purchase a move-in or an under-construction property. 

What is a Personal Loan?

A personal loan is an unsecured loan and does not involve collateral. Lenders, therefore, may charge a higher rate of interest on personal loans. Further, the tenor for personal loans is also shorter as compared to secured loans. Borrowers can avail of a personal loan to meet their short-term financial goals when they know they will be able to pay off the loan within a few years.

Home Loan vs. Personal Loan: Which is Better?

To be able to answer this question, we must first look at the difference between these two financial products.

Loan Amount

Home Loan collateral is the same property against which the Home Loan has been taken. Since a Home Loan involves security, the risk for the lender in lending money is low. Lenders sanction sizeable amounts basis the eligibility of the borrowers. Borrowers can avail of a loan amount of Rs.5 Crore* or higher, under a Home Loan.

Personal loans, on the other hand, do not involve any collateral and therefore, can be a risky affair for the lender. Lenders may not sanction a high loan amount under a personal loan as compared to a secured loan. 

People Also Read: Home Loan Disbursement and Sanctioning Process

Tenor

Since Home Loans involve a sizeable amount, lenders may allow borrowers to repay their loans over a period extending up to 32 years. A long tenor enhances the Home Loan feasibility and can make repaying the loan easier and stress-free.

However, when it comes to personal loans, lenders expect borrowers to repay the loan within a short tenor. The repayment tenor for personal loans typically ranges between 1 to 5 years.

Interest Rate

The comparison is incomplete without the comparison of Home Loan vs personal loan interest rates. Home Loans are secured loans and therefore, lenders sanction these loans at low interest rates. As a matter of fact, home loans are cheaper than most unsecured loans. Currently, home loan interest rates vary between 8.50%* p.a. and 17.00%* p.a. for salaried applicants. Personal loans, on the other hand, may draw higher interest rates. 

Processing Time

Home Loans are big-ticket loans and lenders sanction these loans after proper assessment and verification. The loan processing time can therefore be higher for Home Loans. 

Personal loans, on the other hand, involve small sums of money and therefore, may get sanctioned quickly.

Also Read: Know About Home Loan Disbursement and Sanctioning Process 

End-Use Restriction

While Home Loans have many advantages, there is one thing that works in the favour of personal loans. Personal loans come with zero end-use restrictions. In other words, an individual can use the funds availed of under a personal loan to meet any kind of personal or professional requirements. One can use this money to pay off another loan, pay for a child's education or wedding, take a luxury trip abroad, etc. 

Home Loans, on the other hand, come with end-use restrictions. One can use the money availed of under a Home Loan to buy a home. Thus, if you need money for any other purpose than to buy or build a home, a Home Loan won't come in handy. However, you can benefit from a top-up on your Home Loan which can be used to fund your other housing expenses such as home renovation or buying new furnitures. 

The difference between Home Loans and personal loans discussed in this article indicates that when it comes to ease of repayment, Home Loans can be better than personal loans. However, the funds availed of under a Home Loan can only be used to buy a ready-to-move-in or an under-construction property. Thus, if you need money urgently to take care of a financial emergency, taking a personal loan can be an option.

If you are taking a personal loan, try and pay the loan as soon as possible as personal loans are sanctioned at high interest rates and therefore, the longer you wait to repay the loan amount, the higher your total interest outgo will be. In case you already have a Home Loan running, you can avail of a Top-up Loan. Top-up Loans are sanctioned at low interest rates as compared to unsecured loans and come with end-use flexibility for various housing expenses. 

People Also Read: About Top Up Loans and How to Avail of Tax Benefits