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5 Basic Differences Between a Personal Loan & a Home Loan

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Loan

What is a Home Loan?

A home loan has a precise purpose related to a house. It can be the purchase, renovation, or construction of a property. We all know that it is a significant expense to purchase a property. Everyone doesn’t have that kind of amount with them at once to spend.

Therefore, they take a home loan and pay the bank or the financial institution in Equated Monthly Instalment (EMI).

What is a Personal Loan?

A personal loan can be taken for various purposes. It can aid a cash crunch or help fulfil a goal where you need some money to be infused. The common reason why people take personal loans are travelling, marriage, higher education, medical, or any other kind of emergency. It is also paid via EMIs.

There is a vast difference between a personal loan and a home loan apart from the basic purpose. Let us explain the 5 fundamental aspects of the personal loan vs home loan in detail in upcoming sections:-

1. Loan Amount

A personal loan is taken to fulfil a minor requirement of cash. Say for a holiday, renovation, or an expensive phone. Thus the loan amount for a personal loan typically ranges from 50 thousand to 25 lakhs. The loan amount depends on the credit score of a person.

On the other hand, a home loan is taken for a significant amount that ranges from 5 lakhs to 10 crores. It depends more on the value of the property rather than the credit score. 80% of the value of the property can be taken as a loan by an individual.

2. Rate of Interest

Personal loans are known for their convenience but also higher interest rates. Its basic rate of interest ranges between 11-25%. A poor credit score or longer tenure can eventually raise the interest. One reason for its higher interest rate is that it is an unsecured loan.

Home loan interest rates are lesser than the interest rate for a personal loan. The usual rate is 8-12%. The tenure for the loan is of many years, and it’s a secured loan. So the interest rates are lesser than personal and many other loans.

3. Loan Repayment Tenure

Personal loans are provided for a short-term period. Its tenure ranges from 12-60 months. But generally, institutions prefer a short time period, for example, 6 months. One reason for giving personal loans for smaller tenure is that lenders don’t want to risk their principal sum by lending for a longer time.

In contrast, home loans are given for even 30 years of tenure. The amount is more in the home loan case, and the risk is minimal as the loan is secured through the mortgage. So institutes are generous in providing longer tenures for repayment of home loans.

4. EMI Amount

The amount of monthly instalment for the same amount can be more in a personal loan. The reason is that a personal loan is given for a limited time for a maximum of 5 years period.

In the case of the home loan, the EMIs are spread out for many years. Thus it becomes easy to minimise the EMI amount. Therefore it won’t be easy to purchase a property with a personal loan instead of a home loan.

5. Tax Rebate

Under section 24 of the income tax act, a certain type of buying, construction, and renovation through personal loans comes under tax rebate. Other than that, there is no tax relief for the repayment of a personal loan.

Home loan repayments fall under tax deduction through sections 80C, 24, and 80EE of the income tax act. Banks can charge up to a maximum amount of 3.5 lakhs as interest on a principal amount for a home loan.

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Finance

Know Which Lender offers the Best Gold loan Rates and What Factors Influence Them

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Gold loan Rates

The credit lending ecosystem has grown exponentially amidst the increasing demand for big-ticket loans in India. Despite undergoing a massive economic crisis, India’s financial system has experienced substantial growth owing to individuals’ inclination towards secured credit facilities like gold loans.

One of the major reasons behind the growth of this particular sector has been the low-interest rates offered by the best gold loan providers. These rates generally range between 7% and 29% and vary across different lenders, depending on certain factors. Financial institutions such as Bajaj Finserv offer moderate interest rates against the best gold loan facilities.

Nonetheless, before going ahead with the loan application process, individuals should know about aspects that influence these rates.

Factors determining gold loan interest rates

Among all the asset-backed credit facilities, gold loans get more preference due to their easy disbursal process, making it a prudent choice during a financial crunch.

However, when it comes to gold loan interest rates, applicants still need to take a few pointers into consideration to make the process affordable.

  • Loan amount

Due to its secured nature, a gold loan does not come with a risk of massive financial burden. However, the loan amount still requires considerable attention because of its role in determining interest rates.

Note that the principal amount is decided by the total value of your pledged gold assets, and the purity of gold is expected to be 18K-24K. This is why it is important to evaluate the purity of your gold ornaments before submitting them as collateral.

The surge in gold prices in India (nearly Rs.4,000 per gram, reported in April 2021) has been beneficial for borrowers as it helps them to availof a sizeable loan amount.

Keep in mind that the interest rates also increase with the loan amountin such cases. So, compare gold loan schemes before choosing one.

  • Monthly income

Even though the eligibility criteria are not stringent in the case of secured loan variants, some basic aspects are still assessed by lenders to avoid the unnecessary hassle of repayment failure.

Among them, your income stability plays a significant role as based on that, financial institutions decide the rate of interest.

To avail of the best gold loan rate, make sure you have a steady monthly income. This will help bear the EMIs conveniently for the entire loan tenor.

  • Credit profile

Your entire credit profile consisting of the repayment track record and CIBIL score is another key aspect to pay heed to while checking the eligibility criteria for a gold loan. The three-digit numeric summary representing your creditworthiness helps lenders examine your repayment capacity and levy interest rates based on that.

To get the best gold loan interest rates, consider working on aspects that influence your credit history. As a matter of fact, making timely payments, keeping tabs on the credit report, etc., help borrowers to achieve that.

  • Benchmarking methods

Financial institutions generally follow two kinds of benchmarking methods in the case of gold loans, such as repo rate linked rate (RLLR) and MCLR linked lending rate. Note that the rate of interest keeps changing across lenders depending on the benchmark regime they follow.

While looking for best gold loan schemes, make sure to check the benchmarking method each lender follows as the interest rate will be influenced by that.

Apart from these aspects, your chosen repayment tenor also has a vital role to play in deciding the interest rate. Therefore, choose your repayment schedule wisely before applying for a gold loan and save yourself from hefty EMIs.

Further, to manage all your financial liabilities properly along with monthly instalments, you should look out for the following pointers too.

  1. Processing fees

Some financial institutions impose additional charges of up to 2% while processing the gold loan application. It is expected that these charges are bound to increase in the case of high-value gold loans. Few lenders also levy charges on loan foreclosure or part-prepayment.

  1. Loan disbursal time

Due to the simple documentation process, the funds get disbursed within a few hours to days, depending on your preferred lender. On top of that, keeping all the required documents prepared and meeting the basic eligibility help to expedite the process and gather funds to tackle emergency situations easily.

With easy access to internet facilities, such information can be easily obtained from lenders’ websites. Along with that, the interest rate is also mentioned to help you make an informed decision while choosing thebest gold loan provider.

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