Is taking a personal loan for the down payment of the property a good idea?

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Posted In HOME LOAN
Is taking a personal loan for the down payment of the property a good idea?

There can be an endless discussion about why the buyer should have saved enough funds to pay for the down payment of the property. The banks provide home loans up to 80 percent the price of the property, the rest 20 percent have to be paid by the buyer from his own pocket.

But with time passing, the need and the pressure to buy the property keeps increasing. At that time if you don’t have enough funds to pay the down payment, and you think of taking a home loan for the same, think twice.

We list all the reasons why one should not take a personal loan to pay the down payment:
  • The rate of personal loans is higher as compared to the home loans since the buyer does not put any guarantee against the loans. The personal loans can range from 11 percent to 20 percent depending on a bank to bank. For the home loan, the rate of interest up to Rs 30 lacs is 8.35 percent and for an amount higher than Rs 75 lacs, it is 8.65 percent.
  • SBI charges interest from 11.90 to 14.50 on personal loans if you work for a rated company. If not, then the loan can range from anywhere 12.65 to 14.75. Taking a personal loan will jack up the price of the property substantially.
  • There’s a rule that banks do not prefer the borrowers spending more than 40% of their salary on loans as it may create an imbalance in the regular expenses by combining two loans together.
  • Let’s say that the buyer wants to buy a property worth Rs 30 lacs and the banks will give out a loan of Rs 24 lacs, as it is 80 percent of the total property. The rest Rs 6 lacs, the buyer has to pay himself. Let’s say that the buyer takes a personal loan from the bank to pay these Rs 6 lacs. The interest rate for the personal loan is 11.90 percent and the loan duration is 4 years, the monthly EMI for the same will be Rs 15,771. For the home loan at the rate of 8.35 percent for 20 years, the monthly EMI will be Rs 20,600. The total EMI that you will have to pay will be around Rs 36,371 and according to banks, to pay such EMI, your monthly income should be Rs 91,000, as the sum of EMIs should not increase 40 percent. If your monthly salary is less than the mentioned then you will have to reduce the amount of your home loan.
  • Taking two loans will be a burden for paying it back. Your monthly finances and expenses need to be carefully planned to keep them in balance.
  • Keep in mind that you may find it difficult to take another loan in future.
  • There are tax benefits for the buyers if they are taking a personal loan to renovate the house or pay the down payment for the property. A borrower can claim up to Rs 2 lacs on the interest paid against the personal loan. 

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