Personal Loan

Should You Take a Personal Loan to Repay Your Home Loan?


Buying a home is one of the most essential and life-changing decisions for everyone. It is also one of the most significant financial and emotional investments. So, when someone buys their dream house, they may spend a little more than planned. 

Home loans are fantastic, but sometimes it is hard to make a down payment when unprepared. This is especially the case if one doesn’t want to break their assets or if the house value is too expensive. If someone is in a similar situation and is thinking about getting a personal loan for a down payment on a home loan, read this article to find out if it is a good idea.

This article will examine the pros and cons of a personal loan to help people decide if they should use a personal loan to repay their home loan.

Pros of Taking a Personal Loan for Home Loan 

  1. Quick access to money

People know that getting a personal loan is quick and easy. The lender will send a confirmation once the borrower has completed the application and uploaded all the required documents. 

After checking the profile and documents, the lender will decide whether or not to grant the loan. And one significant benefit is that all the information about the loan application is sent through emails and/or texts. After submitting all the relevant paperwork, the lending process usually takes 2-7 days, based on the lender’s requirements. Once the money is approved, it can take another one or two days to get it.

Before looking elsewhere, a borrower should find out if their current bank has personal loan options. Many banks now offer personal loans that have already been approved and qualified based on a person’s credit history and relationship with the bank. If one wants to apply for a personal loan online with one of these pre-approved offers, the money could reach their account in just a few minutes. 

  1. Flexible repayment term

A personal loan has a flexible repayment period of 1 to 5 years. The borrower can choose this based on his or her needs and preferences. In certain situations, the term can be extended up to 7 years. Also, some small-amount loans through fintech apps can be paid back in 6 to 24 months. Most of the time, though, they are small loans with high-interest rates.

  1. No collateral

The best part about a personal loan is that one doesn’t have to put up assets as security as is required with a home loan, car loan, loan against property, etc. A guarantor is not required for a personal loan.

  1. No need to break invested funds 

One can sell their investments or borrow from friends or family when they do not have enough money. If they invested as part of a long-term plan for their money, it might not be a good idea to break it. In this case, a personal loan will help.

  1. The tax situation

Paying back a personal loan does not give a person any tax breaks. But if one uses a personal loan to repay a home loan, they can deduct up to Rs. 2 lakhs per year in interest payments from their taxes.

Cons of Taking a Personal Loan for Home Loan 

  1. Processing charges 

Most banks and NBFCs charge a portion of the loan for processing. Most of the time, this fee is higher than the one charged for a secured loan. This means that the borrower gets less than what they asked for.

  1. A high rate of interest

Personal loans tend to have higher interest rates than other types of loans. This is mostly because they are not secured by anything. The 12–20% annual interest rates are 2-3 percentage points more than typical loans. This could make it harder for people who do not have enough money to pay back their loans.

  1. Strict rules 

When it comes to who can get a personal loan, lenders follow very strict rules. Most banks and NBFCs will not even look at an application unless it meets a certain income level. In addition to the applicant’s income, their credit score is also looked at. A poor or average score could cause an application to be turned down.

  1. Payment rigidness 

Borrowers can choose their repayment period. But, most lenders will not let them change it later on. People cannot pay off their loan early or in parts. Instead, they have to pay the full amount. Also, not paying the EMIs on time could lead to legal action, making things harder.

Should you Take a Personal Loan or Not?

A personal loan has a lot of benefits and it may be tempting to use it to repay a home loan. But, it must be kept in mind that it is the most expensive loan, and one should consider all other options before choosing it. Most people are afraid of breaking their investment funds. Investments ensure a safe and sound future for oneself and their loved ones. If somebody does not want to compromise on their investments, it is in their best interest to choose a personal loan. They can search for the best personal loans and negotiate with their current lender or bank.


Let’s say a person has not saved enough money for a down payment on a home loan. In that case, they might want to take a personal loan. But it must be remembered that a good rule of thumb for borrowing is that people should be able to pay at least 20% as a down payment on a new loan to make payments easier.

To learn more about taking a personal loan or a home loan, visit Piramal Finance for information and guidance