Your Home Renovation May Require Some Financial Innovation. Which One Should YOU Go For – Personal Loan OR Home Loan?

Last Updated : Sept. 19, 2019, noon

Flaky walls, leaky ceilings, creaky kitchen cabinets… not the best way to welcome the festive season. The Renovation can’t come soon enough, but with mounting expenses, who has that chunk of cash lying around? Maybe, there’s a solution. If you think your house needs a coat of new ideas, and not another dose of procrastination, read on!

If chosen carefully, Loans can be a great way to avoid postponing your Home Renovation plans. Consider two options – a Personal Loan and a Home Loan .

While a personal loan can be approved instantly provided you meet the eligibility criteria, a home loan can take about 10-15 days to get disbursed. So, on the procedural ease, a home loan is no match to a personal loan. But is it the same in terms of savings? Let’s compare and find out.

Comparison Begins Now

Interest Rates

While home loans come at an interest rate of 8.35%-9.50% per annum, personal loans are much costlier at 11%-20%. Lower interest rates on a home loan mean you will pay less on renovation.

Repayment Tenure

Home loans are given for a much longer tenure compared to a personal loan. While you can have a maximum of 30 years to repay the home loan, you get only 5 years (max.) to pay off your personal loan dues. The shorter tenure on a personal loan can lead you to pay more towards the Equated Monthly Installment (EMI).

The example below will show the cost difference between the two loans.

Example – If you want to renovate a 3-BHK flat in Delhi, you may have to take a loan of around ₹5 lakh. So, if you get a 5-year personal loan and a 7-year home loan of ₹5 lakh each at 15% and 8.60% interest rate, respectively, how will that show on the overall EMI and interest payments? For that, you can check out the table below.

Home loan with a longer tenure still leads to a lesser interest outgo compared to a personal loan. Usually, when the tenure is longer, the interest liability increases and vice-versa.

Tax Benefits

Home loans give you tax exemptions upto ₹1.5 lakh and ₹2 lakh on principal and interest repayments, respectively, in a financial year. These exemptions will reduce the overall outgo on renovation. In contrast, personal loans don’t have tax benefits.

So, if you want immediate funds to renovate your home, you can opt for a personal loan and get it done. However, a home loan can save more on renovation as pointed out in this post. So, the choice is yours!