Loans have become a necessity for most of us to manage our finances. We often need a loan during an emergency or while making an expensive purchase. Financial institutions are always eager to provide loans to a creditworthy individual who needs some financial support. They have introduced several secured and unsecured loan options so that individuals can avail of the best loan according to their needs.
Home loans and personal loans are entirely two different forms of a loan with their benefits and conditions. Depending on your needs, you can go for housing loans or personal loans. However, before going for either of the loan options, it would be wise to assess your needs and other factors.
Personal loans are a handy option when an individual needs a small amount of money to pay off a bill or a down payment. On the other hand, home loans provide a significantly large amount of money that you can use to make an expensive purchase, such as buying a house or starting some major construction work.
Here are different factors that can help you decide the right loan option:
Security
The main difference between home loans and personal loans is that personal loans are collateral-free, which means lenders will not ask for any security while approving your loan. On the other hand, home loans require the borrower’s house as a form of collateral. It gives a home loan an advantage over a personal loan as housing loans have a higher chance of being approved.
Loan amount
Financial institutions do not usually provide large amounts through personal loans because these are unsecured loans. The amount is based on the credit history and financial stability of the borrower. However, this might not be the case with home loans. Financial institutions offer a considerable portion of home value, although the amount may vary upon the borrower’s credit history. However, the amount is generally much higher than what lenders offer through a personal loan.
Interest rates
Another factor to consider while choosing between home loans and personal loans is their interest rates. Both personal and housing loans require you to pay the interest along with the borrowed amount. However, interest rates on personal loans are slightly higher than that of housing loans because of their unsecured nature. The rate of interest also varies due to factors such as credit score, repayment capacity and tenure. One must check for themselves what their lender is providing.
Tenure
Loan tenure is another deciding factor to consider while opting for a loan. If your loan has a longer repayment time, your EMIs will be lesser, but you will end up paying more as annual interest, and vice versa. Personal loans generally provide a period from one to five years for repayment, whereas the housing loan tenure can range up to 30 years. Sometimes, the calculation of interest rates may become difficult and time-consuming. Most lenders usually provide you with a personal or home loan EMI calculator. You can also use them to help you decide the best tenure and plan your repayment ahead of your loans.
Conclusion
Loans can help you at a time of immediate need or planned future
expenses. They allow you to manage your finances better. However, you need to
be aware of your needs and understand the pros and cons of various loan types
before applying. You can use an online EMI calculator for home loansand personal loans to better analyse
your options.