If you are planning to buy a home anytime soon, like most of us you will depend on the bank for the home loan. However, banks only lend up to 90% of the value of the property as a loan and the rest of the amount, the buyer is responsible for paying the remaining 10% as well as any additional costs related to the home loan transaction. With the rising cost and inflation, it is completely understandable if the saved-up funds are not enough for a home loan down payment. In such a scenario, you need to search for the best banks for personal loan.
It is true that one can get a personal loan easily with the best personal loan app which will give you instant liquidity, but you should understand how personal loans work and most importantly what you should know about making a down payment with the help of a personal loan.
Important Aspects to Know Beforehand
Interest rates: When compared to home loans, personal loans have substantially higher interest rates because they are unsecured loans. A buyer can currently obtain housing loans in India with interest rates between 7.50% and 10%. Personal loan interest rates, meanwhile, are currently between 11% and 20%. This would substantially raise the price of purchasing your property. Hence, it is suggested that if the buyer has no other choice but to finance their home loan down payment then only look for the best banks for personal loan. A personal loan comes with higher interest rates and shorter tenure that if not paid on time will cause them to face financial hardship. If you have a strong credit history and consistent income then availing a personal loan will be a good option as you will be able to get it with low-interest rates.
Effect of personal loans on credit scores: If a person chooses to use a personal loan via the best banks for personal loan to make a down payment on a home, this will also have an effect on his creditworthiness that a home loan lender will consider. Since you leveraged a part of your creditworthiness and repayment capacity to obtain the personal loan, this will have an impact on the size of the home loan that the bank will give you.
Why Should you use a personal loan as a down payment?
Home loan processing is a long process if compared with the personal loan application process via the best banks for personal loan. The time required for banks and NBFCs to confirm the accuracy of the information provided by the borrower and the legality of the property being used as collateral, the process of a home loan can take a few days for it to be approved and the money to be granted.
Without an existing contract, the seller cannot wait or keep the house on the market for so long. You must thus look for alternative sources of funding that can be obtained quickly. This is when applying for a personal loan is the best option when it comes to making down payments. One of the best things about best banks for personal loan is banks approve and give personal loans quickly because of the low loan amounts it is associated with.
Pros of using a personal loan
- Simple accessibility: How simple it is to apply for a personal loan via the best personal loan app is one of its key appeals. Personal loans are easy to obtain because they require little documentation and have simple qualifying requirements. A borrower needs a strong credit rating, a stable income, and a solid employment history in order to be approved for a personal loan. A personal loan has a speedy disbursement schedule, which helps to shorten the time it takes for you to pay the down payment.
When you submit a complete personal application via the best personal loan app with all the required information and supporting documents, the lender will send you an email to let you know whether the loan is approved or denied. It typically takes 2 to 7 days for the loan to be approved after all required paperwork has been submitted. However, this could differ from one lender to another.
- No collateral: To obtain a personal loan, no collateral is required via the best personal loan app. Your creditworthiness and income are the only requirements for obtaining a personal loan.
- Ease in repayment: Lenders provide personal loan borrowers with flexible repayment options. The borrower has the option to select a loan term for a personal loan that best meets his or her demands You can decide on a term during which you can pay the Equated Monthly Installments without difficulty.
- Serves as a financial safety net: When you need money, you can borrow from friends or family or sell assets. It might not be a good idea to break the investment if you have a long-term financial plan and borrowing money from close friends or family members could cause a rift. Also, one should have enough money saved up to cover a rainy day.
Using a personal loan for a home has disadvantages too
There are a few disadvantages to getting approved for a personal loan that you ought to be aware of.
High rate of interest: The major problem with personal loans is their exorbitant interest rates. Based on the homeowner’s profile, the interest rate is typically between 12 and 14%. You will pay more interest and fees over the course of a longer repayment period, such as four to five years, than the loan’s initial balance.
Requires good credit score: Your credit score and history, age, employment status, regular income, debts, and other criteria are all taken into account by the best personal loan app to decide the amount of loan you are qualified for. Your capacity to make loan payments is largely based on your credit score. If a lender knows you have a good credit history, they are more inclined to extend credit for personal loans.
Conclusion
Lenders provide personal loans to customers so they can pay their bills without an end usage. For instance, if you take out a personal loan, there are no constraints on how you can utilize the money you borrow—you can pay for vacations, weddings, college, etc. You can utilize the loan amount to pay a down payment on a home loan because there are no limitations on where you can spend it.
By taking out a personal loan to cover the down payment on a house, the borrower now has two loans that they may pay off at once without using their savings to cover the down payment. Many believe they can utilize this money to pay the down payment because there are no usage restrictions on loan amounts borrowed for personal goals.
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