Pros and Cons of Using Personal Loan for Down Payment on Home
By Anupama Deshpande | Jan 10, 2019

Buying a home is one of the biggest decisions of your life which involves a huge sum of money. That is why you need to apply for a home loan if you are planning to buy your home.

Now-a-days, with a change in time, people do not want to wait till their 50's and want their own home in their 30's only. One must know the fact that for buying any house property, he/ she also needs some cash in your hand to give a down payment apart from home loan.

While buying a home, you need to personally fund a portion of the cost of the home. Down payment is the sum of money that you pay upfront to the seller of the house property. As per RBI guidelines, you need to put 10% in a property up to Rs 30 Lakhs, 20% in property worth Rs 30 Lakhs to 75 Lakhs, and 25% in property above Rs 75 Lakhs. The lender sees the down payment made by you as a proof that you have in the home purchase.

The down payment has a significant impact on the total cost of your home. More you make down payment, less you have to avail home loan and lesser will be the Home Loan EMIs.

If you have sufficient funds with you that you can easily give as down payment for home then there is no issue but suppose you don't have enough money in your hand to cover down payment then what will you do?

Suggested reading Will Personal Loan Affect Home Loan?

You may think of liquidating your long term investments to arrange the funds for making down payment but you must note that liquidating your long term investments has a negative impact on your financial planning and thus this option should be the last resort.

Here, one of the ways to arrange for the funds for down payment is Personal Loan. However, it is an expensive option as personal loan has a higher rate of interest. Still when nobody comes to your rescue, you have this option left.

As per its name, Personal Loan is a loan that may be taken for variety of personal reasons where you do not have to disclose the reason for taking the loan. You can avail this loan for wedding, for buying any asset, for medical emergencies, for education, to renovate your house or even for home down payment.

Mentioned below are the pros and cons of using personal loan for down payment on home:

• Personal Loan is easily available
• Personal Loan is an unsecured loan and you need not deposit any security or collateral for taking this loan
• In Personal Loan, you generally get 1 to 5 year's time to repay the loan
• You can negotiate with the lender on interest rate of personal loan, in case, you have good relations with the lender and carrying good credit score
• You can avail tax benefits on personal loan if you use the personal loan to make the down payment for a house
• You can keep your savings intact for other obligations by using personal loan for down payment

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• Personal Loan is available at very high rate of interest say 11% to 25% p.a.
• If you avail a personal loan for making down payment then you will have two loans to repay i.e. one EMI of your home loan and second EMI of your personal loan

After reading out above mentioned pros and cons of using personal loan for down payment on home, finally it is your own decision whether you want to avail personal loan for down payment on home.