Buying a house is a dream of many. However, that dream can quickly become a source of concern when you realise how much you need for a home loan down payment. To many, accumulating such a significant amount can be worrisome, and who wants to wait forever to become a homeowner?
This is where a personal loan can help. While a personal loan may not be the first option that comes to mind when taking a loan to buy a house, it can effectively bridge the down payment gap, helping you achieve your dream home sooner. However, before applying for one, understand why a personal loan is a smart choice for a home down payment.
A down payment is a significant factor when applying for a home loan. It is a percentage of the total cost of a home that buyers must pay upfront. In India, the minimum down payment for a home loan typically ranges from 15% to 20% of the purchase price.
The larger you pay the down payment, the smaller your loan amount will be, reducing your home loan EMIs and interest over time.
A personal loan to cover your home down payment can offer several advantages. While it may not be the traditional route, it's worth considering the following benefits:
We never know when our finances might take a turn for the worse, so it's always better to keep our savings intact for financial setbacks.
Opting for a personal loan for the down payment on your home saves you a lot of money and allows you to be better prepared for unexpected expenses. It provides you with the necessary funds without compromising your financial stability.
Generally, securing a personal loan involves less documentation and a more straightforward approval process. It can save you the time spent gathering extensive paperwork.
Additionally, many platforms like Quid help you connect with reliable financial institutions, letting you instantly apply for an online personal loan. This convenient process allows you to complete the loan application from the comfort of your home, which helps you get the funds you need faster.
A personal loan often comes with flexible repayment tenure, allowing you to choose a schedule that fits your financial situation. Whether it's a shorter tenure with higher EMIs or a longer tenure with lower EMIs, you can select a personal loan term that suits your budget and repayment capabilities.
If your finances take a positive turn, this flexibility can be particularly beneficial in fulfiling your obligations sooner. A flexible repayment schedule can help you manage your debt more effectively and reduce the risk of defaulting on loan repayments.
A personal loan is typically unsecured, meaning it is collateral-free. And, if you don't have significant assets to pledge or prefer to avoid risking your property, personal loans can be a viable option.
Being collateral-free also means the approval process is generally quicker and less complicated. However, missing monthly EMIs can significantly affect your credit score and financial health.
Personal loans are known for their fast disbursal times, making them an excellent option for those who need funds quickly. Many lenders offer rapid approval and disbursal timelines for applicants who meet their criteria.
So, by ticking the boxes of the lender’s eligibility criteria, you’re more likely to get your loan approved sooner. This helps you expedite your home purchase process, avoiding delays that can arise from waiting for funds.
When taking a personal loan to pay the down payment for your house, there are a few things you must always keep in mind:
Unlike traditional house loans, which are secured, personal loans generally fall into the unsecured loan category, where the absence of security leads to higher interest rates than the typical home loan interest rates.
So, to land a fair deal, compare different lenders and the terms and conditions they offer. Check whether the interest rates are fixed or floating. While fixed rates provide a stable EMI throughout the loan tenure, floating rates might start lower but can fluctuate over time, potentially increasing your financial burden.
Down payments often require a large sum of money, and securing such a large sum through unsecured personal loans can be challenging. So, to be a reliable borrower for personal loan lenders, keep your debt-to-income ratio in check. It’s one of the main criteria financial institutions check before sanctioning the loan amount.
The debt-to-income ratio measures your monthly debt payments against your monthly income. A high ratio can make it harder to qualify for a loan, or the lenders may incur higher interest rates, increasing your overall loan amount.
Your credit score is important in the loan approval process and the interest you’ll receive on a personal loan. Lenders use it as a metric to assess your creditworthiness and the level of risk they’re taking while lending you money.
While a higher credit score generally offers you better loan terms and lower interest rates, a lower credit score can portray you as a risky borrower. So, check your credit scores before applying for a personal loan to know whether you’re creditworthy.
Financial institutions run a verification process to verify whether the details provided are valid. You must provide them with proof of income, address, employment, and others. So, keep these documents handy to expedite the loan approval process.
The verification process may take some time, so factor this in while considering the timeline for your down payment. Start the verification process early to ensure you can access the funds when needed.
Taking a personal loan for a house down payment can be a strategic financial move, offering quick access to funds, flexibility, and the ability to keep your savings intact. While it’s crucial to consider the costs and manage the loan responsibly, the benefits can significantly outweigh the drawbacks. By understanding the advantages and planning carefully, you can turn your dream of owning a home into reality without undue financial stress.
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