Let’s start with the loan, what does a loan stand for? In financial terms, a loan is basically giving money to one or more individuals, organizations, or any other entities to other individuals, organizations, etc.
There are different types of loans such as home loans, car loans, educational loans, personal loans, etc. that we can avail from banks and non-banking financial companies to fulfill our needs and requirements.
The rate of interest is charged for every loan and this rate of interest is different for each category. You will be able to get detailed information on these differences from a capital-first personal loan.
Both personal loans and home loans offer different options for customers who need an extra amount of cash/money than they have in hand. While the end result is the same which is, to get that extra amount in order to fulfill the needs, the procedure and the finer details are considerably different.
Before you can have a clear picture of the differences between the two loans, it is obligatory to know what personal and home loan stands for.
Personal Loan
A personal loan is a type of unsecured loan that can be taken without any security and with minimal documentation from any bank or non-banking financial company to meet your personal desires. Specially designed for people who don’t want to go through the hassle of providing security and documentation to get a loan.
Home Loan
A home loan, on the other hand, is a type of secured loan with an adjustable or fixed rate and payment terms that you can take for buying a house/flat or a plot of land for the construction of a house, or renovation, repairs, an extension of your existing house/ property.
There are a Few Major Differences between a Personal Loan and a Home Loan
- The first major difference between the two is; that the personal loan is not secured by collateral. “Collateral” means something of value, like a car home, or land that the lender can reclaim if you don’t repay the amount as per the decided terms and indefinite tenure. However, when we talk about a home loan, it is a secure loan as your home is the security and if you won’t pay the loan, the lender has the right to claim your home and there are chances to lose that home.
- Another major difference is; that you can use personal loans anywhere you want to, i.e. for any of your personal needs. You can go on holiday, spend on a wedding, buy a gadget, use it on home renovation, pay for medical treatment, finance your children’s education, etc. However, if you take a home loan, you won’t be able to use it anywhere except for buying a home. So, you are bound to buy a home only.
- If we talk about the documentation aspect, a personal loan can be obtained with minimum documentation. The lender takes your application and just verifies your income & debts. Your income and debt picture will decide the amount of loan you will get and how long the lender is willing to lend you the money. The credit report is also checked to scrutinize your scores and assign you a credit grade. Depending on your grade the loan amount is decided and the tenure for which you wish to borrow the money will decide the rate of interest which varies from 10% to 36% approx. For a home loan proper documentation is required, including the evidence of your income, and your address proof, as well as all the document of the property should be legal along with the registry, and then the bank will verify each document and then decide that you and your property (the home you are buying) are eligible for the loan or not.
- A personal loan is always a short-tenured loan, a maximum of 5 years. Home loans, on the other hand, are long-tenured loans and you can repay them according to your choice or selected tenure that can fall between 10 to 25 years approx.
- A personal loan is always given for small amounts, so it’s not possible to buy a home with that amount. Home loans, on the other hand, can be taken for big amounts and the approval of that amount will depend on your salary, credit score, and the cost of the home/property.
- The rate of interest on a personal loan is fixed. In-home loans, it is partly fixed and partly variable. One more benefit of a home loan over a personal loan is; it can be used for tax savings as you will get the interest certificate, but this is not the scenario with a personal loan.
A personal loan can make budgeting easier with its fixed rate of interest and the static payment schedule. Even the interest rates of unsecured loans are sometimes lower than those of credit cards. So, it’s a good idea, but only for lesser amounts with less tenure, not for big amounts.
Both loans have pros and cons, so before opting for any one of them make sure to understand your own need and then decide which loan will give you the better interest rates, finally select the one that suits your requirements.
Remember, loans are always helpful in buying something for which you can’t pay completely at the moment but don’t exceed your limit, and don’t take a higher amount of loan than you can repay make sure to consult capital first personal loan to get a better overview.