Thinking of renovating your home but need a little extra financing? Learn the main differences between home loans and personal loans for renovation before making a decision. Several brands have started presenting options to the world for a mobile loan app that offers Instant Loans, BNPL, and Instant Lines of Credit.
Home loan vs personal loan for home renovation: which one to choose?
One of the most common questions homebuyers have is whether it’s better to take out a home loan or a personal loan when doing home renovations. Both loans can be used to finance improvements to your home, but there are key differences between them that you should be aware of so you can make the best decision for yourself.
Home loan vs personal loan for home renovations
What is a home loan?
A home loan is a loan taken out by homeowners to buy, build or improve the value of their home. It allows the homeowner to borrow money to cover the costs of renovating their home and is usually secured by the property itself, like a mortgage. They are offered by banks, housing finance companies and other lenders.
Most home loans are secured loans. Secured loans are secured by the property and therefore have priority over other claims on the property. Other assets such as a car or investments can also be pledged for such loans. These types of loans are often referred to as “second mortgages” because a second mortgage is used to supplement the value of an existing first mortgage. All home loans carry interest rates that can vary depending on several factors, including credit history, loan amount, and interest rate term.
What is a Personal Home Improvement Loan?
A “personal home improvement loan” can be used for any type of home improvement project that includes buying or building a new addition, remodeling, and repairing. This can include things like painting the interior of your home or building a modular kitchen. Personal loans can be used to make improvements unrelated to financing, such as adding a room to your existing structure, which actually increases the value of your property.
Instant personal loans are short term loans offered by banks, NBFC and mobile loan apps. They have faster approval rates as well as a shorter repayment term. Like most personal loans, they can be used for a variety of purposes.
Which option to choose?
If you need a large sum of money for your renovations, a home loan might be a better fit for you, provided you meet the eligibility criteria. However, it is important to note that home loans can also have several disadvantages. One of the most obvious is that they can be expensive. Typically, home loans have high upfront costs and fees, including documentation and appraisal fees. If your credit score is low or below average, these fees could increase the cost of your mortgage. A home loan could also put a strain on your credit report, preventing you from getting other types of loans in the future.
Also, if you don’t repay your loan on time, the lender may take your home and sell it to collect the debt. If you don’t have enough equity in your home at the time of purchase, you may need to pay private mortgage insurance (PMI), which is a monthly fee that protects lenders in the event of default.
A personal loan is a quick way to get some extra cash. It is also available from various lenders, giving you more options to choose from. Although personal loans have smaller amounts, the main advantage is that they are convenient and fast. Most applications can be completed online with minimal documentation and lenient eligibility requirements.
Loans from mobile loan apps are often approved within a day or two. This can be very useful if you need to raise enough money quickly to start your renovations immediately. Sometimes renovations can exceed the predetermined budget. An instant personal loan can also help you with this. Personal loans are also easy to manage, so they are perfect for people taking out a loan for the first time.
Whatever you choose, do your research and choose the loan option that best suits your needs.