Home Loan vs Personal Loan - Which One is Better in India

When it comes to meeting our financial needs, loans have become an integral part of our lives. Whether purchasing a new home or funding personal expenses, loans offer convenient access to the necessary funds. Two popular loan options that cater to different requirements are Home Loans and Personal Loans. Home Loans are designed explicitly for acquiring or constructing residential properties, while instant Personal Loans provide greater flexibility and can be utilised for various purposes. In this article, we aim to provide valuable insights to help borrowers determine the most suitable option for their needs. We will do a Home Loan vs Personal Loan comparison.

What is Home Loan?

A home loan, also known as a mortgage, is a type of loan provided by banks or financial institutions to help individuals purchase a property. It allows borrowers to borrow a significant amount of money to finance the purchase of a home. The loan is typically repaid over a specified period, usually several years, through regular installments that include both the principal amount borrowed and interest charges. The property acts as collateral, meaning that if the borrower fails to repay the loan, the lender may have the right to seize the property.

Characteristics of Home Loan

  When applying for a home or mortgage loan, it's essential to understand key concepts associated with it. 

• Mortgage loans generally offer lower interest rates than Personal Loans, making them an attractive option for home buyers.
• Home loan borrowers can choose between floating and fixed interest rates based on their preferences and financial goals.
• Upon full repayment of the Home Loan, the borrower becomes the sole owner of the house, providing them with complete ownership rights.
• The loan-to-value (LTV) ratio for mortgage loans typically ranges from 60% to 75%, depending on the lender's policies and the borrower's eligibility
• Home Loans are granted based on the lower market value or the property's registered value, ensuring a fair assessment of the property's worth.
• Home Loans can be availed for different types of properties, including both under-construction and fully-constructed properties. However, it is essential that the property has a clear title and is free from any legal disputes or issues.

What is Home Loan?

A personal loan is an unsecured loan provided by banks or lenders for various personal needs. It is based on creditworthiness and income, with no collateral required. Borrowers repay the loan in fixed monthly installments over a specified period.

Characteristics of Personal Loan

Before considering a Personal Loan, it's essential to familiarise yourself with its key characteristics:

• Personal Loans generally have higher interest rates than Home Loans but offer lower rates than credit cards, making them a more cost-effective borrowing option.
• We offer a range of loan amounts and flexible repayment tenures for Personal Loans, typically one to five years, allowing borrowers to choose a repayment plan that suits their financial needs.
• Personal Loans are typically unsecured, meaning you don't need to provide collateral to secure the loan. Instead, we assess your creditworthiness and income to determine your eligibility for an instant Personal Loan.
• Personal Loan funds can be utilised for various purposes, including debt consolidation, home renovations, medical expenses, or financing special occasions, giving borrowers the flexibility to meet their financial goals.
• Our Personal Loans have a streamlined approval process, and upon meeting the eligibility criteria, funds are usually disbursed instantly, ensuring quick access to the required funds.

Home Loan vs Personal Loan: Things You Need to Know 

Here you'll see what aspects of Home Loans and Personal Loans differentiate them. Let's understand the difference between Home Loans and Personal Loans in-depth.

1. Collateral:

Home Loans typically require collateral in the form of purchased or refinanced property. On the other hand, Personal Loans are usually unsecured, meaning they don't need any collateral. If you don't have assets to pledge, a Personal Loan can be a suitable option with low-interest rates compared to credit cards.

2. Loan amount:

Home Loans are commonly associated with larger loan amounts, as they are used for financing the purchase or construction of a home. Personal Loans, in contrast, offer lower to moderate loan amounts based on individual financial profiles and requirements.

3. Tenure:

Home Loans typically come with longer repayment tenures ranging from 15 to 30 years, allowing borrowers to spread out their payments over an extended period. On the other hand, Personal Loans have shorter to medium-term tenures, usually ranging from 1 to 5 years. Opting for a shorter term with a Personal Loan can lead to long-term financial savings.

4. EMI Payments:

Both Home Loans and Personal Loans are repaid through equated monthly instalments (EMIs), requiring borrowers to make regular payments until the outstanding balance is fully paid. Upon repayment completion, borrowers receive a No Objection Certificate (NOC) from the lender.

5. Processing Time:

Personal Loans generally have shorter processing times than Mortgage Loans due to their unsecured nature. Mortgage Loans require collateral in the form of property documentation, while Personal Loans rely on factors such as credit score, age, income, and debt-to-income ratio for eligibility assessment. As a result, Personal Loans are typically processed faster.

6. Interest Rates:

Home Loans often offer lower interest rates due to the collateral provided and the longer-term nature of the loan. In contrast, Personal Loans typically carry higher interest rates as they involve a higher risk for lenders due to the lack of collateral.

Home Loan vs Personal Loan in a Nutshell

Here's a table comparing Personal Loan vs Housing Loan based on some key factors:  

Personal Loan or Home Loan Which is Better?

When choosing between a personal loan and a home loan, it's important to consider your specific needs. If you're looking to buy a property then, a home loan offers lower rates and longer repayment periods. However, if you need funds for various purposes, a personal loan provides flexibility, at higher interest rates. Evaluate your situation, consult with finance experts, & make a decision that aligns with your financial goals.

Conclusion

Understanding the differences between Home Loans and Personal Loans is crucial when considering your financing options. Home Loans require collateral, offer higher loan amounts, longer tenures, and potential tax benefits. On the other hand, Personal Loans are typically unsecured, involve lower to moderate interest rates, and have shorter tenures.  If you're seeking a low-interest rate Personal Loan, it's essential to compare the rates offered by different lenders, including Hero FinCorp, and consider factors such as your creditworthiness and income to secure the best deal.

Frequently Asked Questions

1. What collateral is needed for a home loan?

Home loans require the purchased or refinanced property as collateral, which the lender can seize if the loan is not repaid.

2. What are the typical tenures for personal loans?

Personal loans typically have shorter tenures, usually ranging from 1 to 5 years, allowing for quicker repayment compared to home loans.

3. Can personal loan funds be used for any purpose?

Yes, personal loans provide flexibility and can be used for various purposes like debt consolidation, home renovations, or medical expenses.

4. What is a Notice of Intimation (NOI) for home loans?

A Notice of intimation notifies the lender about the deposit of title deeds, ensuring legal compliance and protecting against fraud.

5. When should I file a Notice of Intimation (NOI) for a mortgage loan?

You should file a Notice of Intimation immediately after depositing the title deeds with the lender to secure your mortgage loan.