Can You Apply for a Personal Loan instead of a Home Loan?

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There is no doubt that buying a home is a substantial financial commitment; it can be an even bigger stretch for many people. Knowing precisely what you’re getting into is vital before making the leap. Prior to making any final decisions on purchasing a house, it’s critical that you understand all your options in detail and not just take anyone’s word for it. To help you with that, we have an unbiased opinion on this subject. This article lists important points before purchasing a home or an equivalent instant personal loan. Read on to get a broader view:

What is a Personal Loan?

A sum of money obtained from a financial organization for any purpose on interest is known as a personal loan. A personal loan is a loan for which you qualify based on your income and credit history.

It enables you to spend on personal initiatives such as buying a new vehicle, furniture, or computer, renovating your home, or even planning your wedding. Additionally, it enables you to finance unforeseen bills or satisfy your monetary needs.

Some key features of a personal loan:

  • An instant cash loan is money loaned from a financial organization and may be used for nearly any purpose.
  • The borrower chooses the institution and the amount of money they want to borrow.
  • In most cases, eligibility is determined by your income as well as your credit history.
  • Most of the time, there is no requirement to put up any collateral for these loans.
  • Personal loans may include interest rates, short repayment terms, and origination fees.
  • Personal loans are available via various financial institutions, including banks, credit unions, internet lenders, and specialty lenders.
  • In most circumstances, you are free to spend the money obtained via an instant personal loan online as you see appropriate; nevertheless, many lenders do not permit using personal loans to cover higher education costs.
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Applying for a Personal Loan:

The assessment of loan applications by lenders depends on creditworthiness. These are the things they typically consider:

1) Credit Report:

Lenders often review your credit report or order a credit score to learn more about how you’ve previously managed credit. Your credit reports include information on prior loans, late payments, and other public records that potential lenders may be interested in seeing.

2) Income:

The lender must confirm your personal loan eligibility and ability to repay the loan. They could inquire more about your work and compensation. They could also look at your existing debt.

3) Provide Appropriate Documentation:

Each lender’s requirements vary. After you apply, your lender may ask for further paperwork. For example, upload or fax your current pay stub, driver’s license, or proof of residency.

What is a Home Loan?

A home loan is a secured loan acquired to buy a property by pledging the asset as security. Home loans provide high-value financing with reasonable interest rates and lengthy terms. EMIs are used to pay them back. The borrower receives back the title to the property after repayment.

Some home loan features every applicant should know:

  • Home loans are available at floating and fixed interest rates and are not instant loans online.
  • You may also borrow money for house renovations.
  • A borrower may deduct house loan principal and interest under the Income Tax Act.
  • You may prepay your home loan that has a floating rate to save costs.
  • You may transfer your mortgage if necessary; however, banks usually demand fees to transfer loans.
  • Home loans don’t cover stamp duty and registration fees, and a buyer must typically pay the difference out of pocket.
  • Age and professional eligibility determine whether a bank grants you a home loan.
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Applying for a Home Loan:

A home loan is a money borrowed to buy a property. In order to qualify for a home loan, unlike when applying for a personal loan, you must meet specific requirements.

To qualify, your lending institute will look at your income, equity, and credit score. Then, the lender will appraise your house to determine how much you may borrow. Most lenders approve an amount up to 80% of your home’s equity worth.

Your lender will tell you the loan’s duration, interest rate, and monthly instalments. The loan documentation is then signed, and payment of closing expenses happens.

Differences between Home Loans and Personal Loans:

Here are some common distinctions:

1) Collateral:

Instant personal loans and home loans have different collateral requirements. A home loan is a lump-sum borrowing against your house. Since the collateral backing reduces the lender’s risk, you may qualify with less-than-perfect credit.

Unsecured personal loans are typical, and no collateral is needed. Instead, signing the contract is enough to acquire funds. Personal loans with competitive rates may require good credit scores.

2) Interest Rates:

With personal loans, rate spikes and payment changes are unlikely as they have set interest rates. You should always check a home loan’s interest rate when applying for it. It may be either fixed or floating. However, each loan’s interest rate depends on your credit score. In addition, because home loans are secured by real estate, the interest rates may be cheaper.

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3) Upfront Fees:

Personal loan online application might include an origination charge. Fees vary per lender and loan.

A home equity loan may include application, origination, credit check, appraisal, and other closing expenses.

4) Loan Amount:

Lenders will loan up to 85% of your home’s equity for a home loan, whereas the amount of personal loan you vary per lender or on your income and credit history.

5) Repayments:

Personal loan periods are usually 24-84 months. However, home equity loans may last five to 30 years, giving you additional time to repay.

6) Tax Advantages:

Using a home equity loan to develop or enhance your house may be tax-deductible. However, the personal loan interest isn’t tax-deductible.

7) Risk:

A personal loan default might affect your credit score adversely but missing home loan payments has stricter implications. Nonpayment of a home loan may force your lender to foreclose the loan and take over your house.

Summary:

Buying a home is a significant financial decision. You can take the first steps towards owning your home by taking a home loan. If you’re committed to building equity in your home and have good credit, you may avail of a loan by applying for a personal loan or home loan as per your convenience. However, it’s essential to understand that home loans are not a one-size-fits-all option. Before applying for a home loan, consider all your options and familiarize yourself with the pros and cons of each loan type.

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