Personal Loans vs Home Loans - Comparison at a Glance

Home Loan Personal Loan
Collateral Yes No
Rate of Interest Usually Low Usually High
Principal Amount Maximum of up to Rs. 10 crores Maximum of up to Rs. 25 lacs
Repayment Tenure Up to 30 years Up to 60 months
Penalty Seizing of collateral by the lender Legal Action/ Low Credit Score

What is a Home Loan?

A home loan or a house loan is an amount of money that is borrowed by an individual from a bank or any financial institution to buy/construct a house. Home loans have either variable or fixed interest rates. The individual must pay back the borrowed amount along with the interest charged in monthly installments throughout the loan repayment tenure. The repayment tenure can vary depending on various factors associated with the loan. A home loan is also a secured loan. It means the borrower will have to submit collateral. In-home loans, the lender usually uses the borrower’s home as collateral. And hence, if the borrower does not pay the EMIs and becomes a defaulter, then the lender can seize his house and sell it to recover the loan amount.

What is a Personal Loan?

A personal loan is an amount of money that can be borrowed by an individual from a bank or any lender for satisfying expenses involving travel needs, medical emergencies, house renovation, shopping household items, etc. A personal loan is also an unsecured loan. It means the borrower does not have to submit any collateral or security to get this loan. The borrower can repay the loan amount by paying for it in monthly installments. The monthly EMI also includes the interest amount charged by the lender or the bank. Personal loans can also be used to consolidate other debts.

As already explained above, an individual can take a house loan to buy a house and a personal loan for various types of expenses. Though the debt for both can be resolved by paying monthly EMIs, there are major differences between the two types of loans.

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Collateral

  • Home Loan: A home loan is a secured loan. If you are planning to take a home loan, you must submit collateral too. The lender will take your house as collateral or security until the loan amount is resolved. However, if you are unable to pay the EMIs, then the bank or the financial institution that provided you the loan can seize your house.
  • Personal Loan: A personal loan is an unsecured loan. If you wish to take a personal loan, you can take it without submitting any collateral.

Rate of interest

  • Home Loan: The rate of interest charged on a house loan depends on various factors including market trends, your creditworthiness, principal loan amount, and so on. Also, as a home loan usually has a long repayment tenure, the rate of interest charged is not exponentially high.
  • Personal Loan: The rate of interest charged for a personal loan can be slightly higher than that of a home loan as the former is an unsecured loan. If you wish to take a personal loan at a lower rate of interest, then you can check out moneyview. You can even get your loan amount disbursed within 24 hours after you fulfill the conditions.

Amount

  • Home Loan: The amount sanctioned for home loans can stretch to crores. However, it depends from bank to bank. Your loan amount will be sanctioned after you meet all the requirements set forth by the bank or the financial lending institution.
  • Personal Loan: The maximum amount that you can get by a bank or a financial lending institution for a personal loan is INR 20 lacs. Again, the amount can vary from lender to lender and bank to bank.

Repayment Tenure

  • Home Loan: The repayment tenure for a home loan can be between 15 years to a maximum of 30 years. The faster you pay, the higher will be the interest rate.
  • Personal Loan: The repayment tenure for a personal loan can be anywhere between 12 months to 60 months (5 years).

Penalty

  • Home Loan: If you miss your EMI payment for your home loan, then the bank or the lending institution can seize the collateral you submitted. The collateral in most cases will be your house which the lender can sell or recoup to recover the losses.
  • Personal Loan: Since a personal loan is an unsecured loan, you will be charged with penalties if you become a defaulter. Your credit score will also be heavily affected which can hamper your possibilities of getting another loan in the future. Additionally, legal action can also be taken against you.

Conclusion

Now that you know the differences between a home loan and a personal loan, you can take a decision accordingly and apply for one. If you already have a home loan running and you need more money, then you can opt for a top-up home loan too. If you wish to purchase household items or furniture, then you can opt for a personal loan. Most importantly, ensure that your loan repayments are made on time to avoid penalties.

Personal Loans vs Home Loans - Related FAQs

Home loans and personal loans have their own purposes. If you are looking to buy a house, a home loan is the best for you. But if you need a loan to fulfill small goals, a personal loan is a great option. Home loans mostly are for bigger amounts and have longer tenures as compared to personal loans.

Personal loans generally do not have tenures that last up to 15 years. They are mostly 5-7 years long, depending on the lender.

Personal loans are flexible and the funds can be used for a variety of things. Thus, you can use it to buy property, but it won’t be a good financial decision given the short tenure and high interest rates of personal loans.

Yes, you can use the funds from a personal loan to pay a downpayment for a property.

Home loans are used for buying property, like a house, flat, or land. They may also be taken for building a house on a piece of land or for home renovation. They in general have a long tenure and also involve a lot of documentation.

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