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Do you think that home renovation with personal loan is a good idea? When you think about home renovation there are various things that you want to do or want to change in your home. Earlier people just get their home painted or do the repairing work for sake of renovation. But, now the time has changed. Now, people invest their time and money to renovate their home and give it a very trendy look. Now, you don’t hesitate to make any big change in the interior of your home to give it a totally new look. To give your home a totally new look, you don’t hesitate to spend more money. But, if you don’t have sufficient funds to renovate your can look for other options to renovate your home. You can borrow a loan against property or a personal loan to renovate your home. Here are a few important things, which one should consider before availing the personal loan for home renovation.
Higher rate of interest: The rates of interest are higher in personal loan. As this is an unsecured loan and you are not supposed to give anything as collateral. Generally, the bank’s money is as at risk, therefore, these banks charge higher rate of interest in personal loan. Generally, banks charge 11.50% to 25% interest on loan amount. Whereas, if you will borrow a loan against property or a top-up loan against your home loan the rate of interest will be lower.
Shorter duration: The tenure of personal loan is much lower as compared to loan against property or home loan. Here, the maximum repayment duration is six years. But, if you will borrow a loan against property, you can avail a tenure of more than10 years.
Higher EMIs: As you are borrowing the loan for shorter duration on a higher rate of interest therefore, the EMIs you are going to pay are much higher as compared to any other loan. For instance:
If you are borrowing loan against property for the amount of Rs. 5 lakhs for 10 years at the rate of 9.75% your monthly EMI would be Rs. 6,539. But, if you will borrow the same amount for 5 years at the rate of 13% your monthly EMI would be Rs. 11,377. Here, with this example you can figure out the difference in amount you are going to pay after borrowing a personal loan for renovating your home.
Higher processing fee: The processing fee in personal loan is higher than loan against property and any other loan. If you will borrow the personal loan, the processing fee ranges between 0.50% to 2.50%, which is higher than the processing fee of loan against property. There are banks who even waive off the processing fee in loan against property if you negotiate with them.
Not available for higher amount: Generally, all banks offer you a personal loan based on your monthly salary. If your monthly salary is low, then you will get a lower loan amount. But, if your salary is higher in that case, your loan amount will be higher in context to your monthly expenses and other financial burden. So, the bank consider all these factors before offering you an amount. But, if you are taking a loan against property to renovate your home, the bank will evaluate your property’s market value and provide you the loan accordingly.
Charges on pre-payment: Most of the banks levy pre-payment charges on personal loan. If you think that you have some extra money and you want to make pre-payment of your loan and close it before the tenure, the bank will charge some penalty amount or charge higher interest on the remaining amount.
Charges on part-payment: Generally, most of the banks impose penalty fee if you will make part-payment of your loan. This is another drawback of borrowing the personal loan. If you want to make part-payments to reduce the burden of the loan, then get ready to pay some more amount for making that part-payment. It will increase your overall loan burden.