Which Loan Should You Choose for Home Renovation: Personal Loan or Consumer Loan? All Information Is Provided Here

Are you considering taking out a loan to remodel, repair, or restore your house? Here is all the information you need to know about the several loan options available to you for financing home improvements or renovations.

Personal and home improvement loans
Home improvement loans are provided by banks and housing finance companies (HFCs) as either a distinct home improvement loan programme within the larger home loan category or as part of their standard home loan product.

While certain banks and non-banking financial organisations (NBFCs) provide personal loans expressly for the purpose of home remodelling, consumers may also choose to use standard personal loans to pay for their renovation-related expenditures.

Before choosing between a home remodelling loan and a personal loan, you should be aware of the following fundamentals:
contrasting interest rates
Knowing how much interest they will pay on their loan balance is the first and most important need for each customer.

The interest rates charged by most lenders for “personal loans for home renovation” and their standard personal loans are often comparable.

While some public sector banks provide lower rates on their personal loan products, most private sector lenders typically offer personal loans with interest rates beginning at 10.49% p.a.

However, the interest rates for renovation loans, which typically start at 8.40% p.a., are either somewhat higher or comparable to those on house loans.

Since personal loans are unsecured, which means a borrower does not need to provide collateral, the interest rates are higher.

Length of loan (Term/repayment schedule)
Banks and other lenders typically provide personal loans for home renovations for a maximum of five years, while some public sector banks may grant loans for up to seven years.

Most lenders may provide a loan duration of up to 20 years for home renovations, and some may even provide payback terms that are much longer.

Most lenders’ standard home loan products include home renovation loans with repayment terms of up to 30 years, which is excellent for borrowers on a restricted budget. Those looking for shorter payback terms, however, should apply for personal loans instead of home renovation loans.

Remember that the shorter the payback term, the greater your interest payments will be, and vice versa, even if the interest rate is lower since you will be returning the loan balance faster.

In contrast, longer loan tenures have much lower annual percentage rates (EMIs), but because of the longer payback time, the total cost of interest increases.

In order to cut their total interest expenses, it is advised that customers wanting lesser loan amounts apply for personal loans for house remodelling, while those seeking bigger loan amounts apply for home renovation loans, which have a reduced EMI load.

What is your maximum loan amount?
Lenders often provide personal loans up to Rs 40 lakh for house renovations. Nonetheless, the banks and HFCs determine the loan amount based on the applicant’s income, ability to repay, and other factors.

When determining the loan amount for home renovation loans, lenders consider the applicant’s ability to repay the loan as well as the loan-to-value ratio (LTV ratio) that has been established for the property.

The percentage of a property’s worth that lenders may finance with conventional house loans or home improvement loans is known as the loan-to-value (LTV) ratio. As long as the lender’s LTV ratio stays within the RBI-imposed restriction on house loan LTV ratios, lenders often grant loans up to 100% of the expected cost of home renovations.

Home loan providers offer an LTV Ratio of up to 90% for loans up to Rs 30 lakh, up to 80% for loans above Rs 30 lakh, up to Rs 75 lakh, and up to 80% for loans beyond Rs 75 lakh.

To determine the LTV ratio for their loan applicants, home loan lenders do a credit risk assessment based on the credit profile, income, ability to repay, market value of the property, etc. of their applicants.

collateral for different kinds of loans
Due to the lack of collateral or security requirements, personal loans are sometimes known as “unsecured loans.” On the other hand, borrowers for home improvement loans are required to provide the lender security over the property they have built or acquired.

Loan distribution
Due to their unsecured nature, personal loans are often handled by lenders far more quickly than house loans, whose approval procedure takes longer since the lender must physically confirm that the property the loanee has pledged is real. Certain banks even provide their loyal and chosen clients with same-day house loan approval and disbursement.