Last Updated on January 14, 2023 by Faiza Murtaza
Many people think that they can only pay for their dream house with a personal loan and that there is no need to apply for a home loan. If you, too, believe the same, you are highly wrong. Personal and home loans are two different entities with various eligibility criteria, features and benefits, and so on. Therefore, knowing the differences between a home loan vs personal loan will be more efficient
before you reach any conclusion.
This article has established differences between home and personal loans based on certain factors. This will help you to make a well-informed decision when you want to take any credit to fulfill the financial crunch.
Table of Contents
First and foremost, the purposes of a home loan vs personal loan are complete. Understanding the purposes at the beginning will help you to decide whether you want to proceed with the home loan or personal loan according to your requirements. When you need to fulfill any financial crunch or meet an emergency, picking a personal loan is a better choice. On the other hand, if you need the money for house-related issues like buying a new property, your house, and so on, you have to go for a home loan.
Home loans are usually secured. It means that you have to provide collateral to get back the credit amount in return. In most cases, creditors hold your house as the collateral that will get forfeited if you fail to pay the total capital debt on time. In other words, the house you buy with the help of the loan becomes a mortgage for the creditor. On the other hand, a personal loan can be secured or unsecured based on whether you are ready to keep anything as collateral.
If we consider the principal credit range for both loan types, home loan is the winner. This is because you will get our principal amount up to 80 to 90% of the total property valuation per the home loan calculator. But if we consider personal loans, the credit amount is limited and much lower than a house loan. This is one of the primary reasons people should always opt for home loans when they need to buy a house, complete renovation work, etc.
Personal loans usually have a lower repayment tenure when compared to home loans. This is because the principal amount granted for personal credit is much lower than that for home loan credit. For instance, if a certain creditor sets repayment tenure for a personal loan at six or seven years, the home loan tenure will be a minimum of 20 years.
Personal loans get processed within a day or two because the complications related to the credit type are less. Besides, if you go for a payday loan or an instant personal loan, you won’t even have to submit credit reports and scores. This is why the loan will get granted much earlier. On the contrary, creditors check the home loan eligibility calculator and then provide an estimate for the processing time. It can be completed within two weeks after the application date or might take a couple of months based on the documents submitted, credit report, credit score, income stability, and so on.
Interest rates for home loans are low because it’s a secured credit, and creditors can liquefy the house as the mortgage if you fail to pay the amount on time. On the other hand, personal loan interest rates are high due to the risks involved with the credit type.
Before you take a home loan or a personal credit, you have to check whether your choice can fulfill your requirements and expectations. Also, you need to consider that home loans require collateral, and the interest payable is relatively high due to the more considerable sum assured. On the other hand, personal loans are granted faster but are associated with higher interest rates.