Personal loan for downpayment of home

Personal loan for home loan downpayment – Good or bad choice?

In this article, you’ll find out if it’s a wise choice to avail of a personal loan for the home loan down payment. You’ll also find out when you should use a personal loan.

What is the down payment for a home loan?

Banks and NBFCs will provide housing finance only 80-90% of your house value, whereas the remaining 10-20% downpayment needs to be arranged on your own. 

Let me explain to you with the help of an example: Imagine you’re planning to buy a house worth Rs. 30 lakh; then banks and NBFC will provide a home loan of around Rs. 24 to 27 lakhs. You will need to arrange the remaining amount of Rs. 3 to 6 lakhs as the minimum down payment for a home. 

Pro Tip: The more you can pay as a down payment for a home purchase, the less the home loan EMI amount will be.

However, many homebuyers may not have the funds to arrange for the down payment for a home. And to fulfill their needs, they resort to availing a personal loan.

Is it good or bad to apply for a personal loan for a downpayment on a home purchase?

Many people take personal loans to either repay their ongoing home loans or arrange a down payment for a home. But is this a good or bad idea?

To understand this, you need to first know what a personal loan is and when you should avail it.

What Is The Purpose Of A Personal Loan?

A personal loan is an unsecured loan that is provided to you to meet your immediate needs. It is given for a short tenure ranging from 1 to 5 years. And it charges high interest as lenders have a high risk of defaults. Most banks and NBFCs charge personal loan interest rates between 9% and 24%, depending on your CIBIL score and other factors.

People with a healthy CIBIL score above 750, a good loan repayment history, and a good employment record get an instant personal loan at the lowest interest rate.

But if you don’t have any of these good records, then you’ll get a personal loan at a higher interest rate. This will lead to a higher EMI amount.

Overall, a personal loan is a good option only to meet your urgent requirements when you don’t have any other choice.

Does Applying For A Personal Loan For A Down Payment For A Home Make Sense?

Usually, banks or NBFCs offer personal loans with around 10.50% to 24% interest rate per year.

If you struggle to pay the EMIs on a personal loan used for a down payment on a home purchase, you could face serious debt problems. This is because home loan EMIs are usually more affordable, being secured against your property. However, when you add the higher EMIs of a personal loan to this, it can become difficult to manage both payments effectively.

No Wonder Availing A Personal Loan For Arranging For A Home Loan Down Payment Is A Bad Idea:

  • A personal loan comes with a higher interest rate.
  • An expensive alternative for making a home loan down payment
  • It comes with a tenor of 12 months to 60 months. And it means paying bigger EMIs.
  • Home loan EMIs + personal loan EMIs = Larger debt-to-income ratio.

The bottom line:

It is not wise to avail of a high-cost personal loan to repay low-cost home loan EMIs for a down payment on a home purchase.

Using your insurance policies and other securities to take a low-cost loan against them is a better way to arrange a down payment amount quickly.

If you have been dreaming of buying your own home for ages, then you can fulfill your wish easily! The Government of India started a Pradhan Mantri Awas Yojana scheme in 2015, which aims to provide affordable houses to everyone who meets PMAY eligibility criteria. Under the PMAY scheme, you can get a home loan interest subsidy of up to Rs.2,67,000.

But you need to rush because this amazing home loan interest subsidy scheme ends on 31st January, 2024.

So check your Pradhan Mantri Awas Yojana eligibility using our PMAY Subsidy Calculator for free and make your dream home wish come true.

Written by

Vishal Kangane

Vishal Kangane is a renowned authority in the field of digital marketing and blogging. While working with Bajaj Finance Ltd during his professional career, Vishal got interest in writing about finance niche. And his passion for blogging instantly led to starting of PMAY Calculator in 2020. His in-depth knowledge and insightful analysis about housing finance niche and Government housing schemes, make him a trusted voice for those seeking guidance in navigating their homeownership journey. Vishal's commitment to providing clear, accurate, and helpful information reflects his deep understanding of the financial landscape, making him an invaluable resource for anyone looking to make informed decisions in housing finance.