Will Personal Loan Affect Home Loan?

A home loan is one of the cheapest loans available in India. Home loan is a secured loan and you can avail it only to buy a home/ plot and not for any other purpose. Home loan is availed for the purpose of constructing a home or buying a home or plot. There are home loan products with interest rates as low as 8.40% pa. Home loan is a long term loan ranging from 5 to 25 years.

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Personal loan, on the other hand, is an unsecured loan and is extended to you by the lender without any security hence bearing higher interest rate than that of home loan. Personal loan can be used to meet any of your current financial needs. You can use the amount taken as personal loan for anything ranging from meeting medical emergency, travelling, buying an asset or to attend a wedding. Personal loans are offered at a higher rate of interest in India ranging from 10.75% to 25%. This is taken for comparatively shorter period ranging from 1 to 5 years.

Home loan has other advantages too including tax benefits on repayment and the interest paid as EMI can also be deducted from your taxable income. In case of Personal Loan, there is no such benefit available.

The factors that affect the loan are age, income, loan-to-income ratio and the repayment capacity of the borrower.

Comparing a personal loan and home loan is like comparing apple and mango. Though both are fruits but are very different from each other in terms of loan amount, tenure and usage.

Now one question may arise in your mind as to will Personal Loan affect Home Loan? Personal Loan affects Home Loan in following ways:

Personal Loan May Improve Your Credit Score

If you have availed personal loan and repaid it on time, it will improve your credit score. Having an excellent credit score will let you avail more home loan conveniently.

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Personal Loan May Decrease your Home Loan Eligibility

If you have taken a large amount of personal loan then your loan to income ratio will increase. With high loan to income ratio, you will be offered less amount of home loan.

Personal Loan May Increase Your Financial Outgo

In case you first take personal loan and then avail home loan without repaying your personal loan, then it will increase your financial outgo because you will have to pay the EMIs towards your home loan and personal loan as well.

If you repay your personal loan before availing the home loan then you will be able to pay the EMIs of home loan comfortably.

Personal Loan May have an Impact on Increasing Interest on your Home Loan

Suppose you have taken personal loan and are unable to repay it well in time then it will have an impact on your CIBIL Score negatively and with low credit score, you will get your home loan at higher interest rate.

It is to be kept in mind that lenders will always first check your monthly earnings and how much you will spend on debt repayment and then only come to a decision whether to extend the loan to you.

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