Planning to renovate your home but need a little extra financing? Learn the key differences between home loans and home renovation personal loans before making a decision. Multiple brands have started presenting the world with options for a mobile loan app offering instant loans, BNPL, and instant credit lines.
Home Loan vs Personal Loan for Home Renovations: Which One Do You Opt for?
One of the most common questions homebuyers have is whether it’s better to take out a home loan or a personal loan when undergoing home renovations. Both loans can be used to fund improvements to your home, but there are key differences between them that you should be aware of so that you can make the best decision for yourself.
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Home Loan vs Personal Loan for Home Renovations
What is a Home Loan?
A home loan is a loan taken out by homeowners to buy, build, or improve the value of their home. It allows the homeowner to borrow money to cover the costs of renovating their home and is typically secured by the property itself, such as a mortgage. They are offered by banks, housing finance companies, and other lenders.
Most home loans are secured loans. Secured loans are backed by the property and therefore have priority over other claims on the property. Other assets such as a car or investments can also be put up as collateral for such loans. These types of loans are often referred to as “second mortgages” because a second mortgage is used to supplement the value of an existing first mortgage. All home loans carry interest rates that may vary depending on several factors including credit history, loan amount and interest rate term length.
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What is a Personal Loan for Home Renovations?
A 'personal loan for home renovation' can be used for any type of home improvement project that includes the purchase or construction of a new addition, remodelling and repair. This can include things such as painting the interior of your home or building a modular kitchen. Personal loans can be used to make non-financing-related improvements, like adding a room to your existing structure, which is in effect increasing the worth of your property.
Instant personal loans are short-term loans offered by banks, NBFC, and mobile loan apps. They have faster approval rates as well as shorter repayment tenure. Like most personal loans, they can be used for a variety of purposes.
Which option should you choose?
If you need a large sum of money for your renovation, a home loan might work better for you – as long as you meet the eligibility criteria. However, it is important to note that home loans can come with several disadvantages as well. One of the most obvious is that they can be expensive. Typically, home loans have high initial costs and fees associated with them, including documentation and appraisal fees. If your credit score is low or less than average, these fees could increase the cost of your mortgage. A home loan could also put a strain on your credit report, making it harder for you to get other types of loans in the future.
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Moreover, If you fail to pay your loan on time, the lender can take your house and sell it to recover the debt. If you don't have enough equity in your home when you buy, you may be required to pay private mortgage insurance (PMI), which is a monthly fee that protects lenders in case of default.
A personal loan is a way to get some extra cash in a pinch. It is also available from a variety of lenders, giving you more options to choose from. While personal loans have smaller amounts, the main benefit is that it is convenient and quick. Most applications can be completed online with minimal documentation and lenient eligibility requirements.
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Loans from mobile loan apps are often approved in a day or two. This can be very helpful if you need to raise enough money quickly to start your renovation work immediately. Sometimes renovations can extend over the predetermined budget. An instant personal loan can also help you there. Personal loans are also easy to manage, so they are great for individuals who are taking a loan for the first time.
No matter what you choose, do your research and pick the loan option that fits your needs best.
