Buying a house is a dream of every Indian, as it is both a personal and financial achievement. As big a purchase as it is, you can always fall short on money to make a down payment. You can use a personal loan for a down payment, but as there are costs associated with it, you must make the decision wisely.
Whether a personal loan for a house down payment is a good idea or not depends on your financial situation, long-term affordability, and risk appetite. In this blog, we will understand all the factors that influence taking a personal loan for a down payment.
A personal loan is an unsecured loan that you can use flexibly for different purposes, including making a down payment for a house. It is most suitable in a situation where you don’t have the money to make the down payment, but the property is too attractive to miss.
Unlike home loans, however, personal loans have a high interest rate, which means the cost of borrowing will be higher. This is why you must consider everything from interest rate to charges before choosing a personal loan for a down payment.
Here are all the ways a personal loan helps with the house down payment:
1. Increasing Property Prices
Real estate prices always go up. If one waits to buy a home, the price of the same property may increase the following year. Many people choose a personal loan because they do not want to let slip away an opportunity to buy a house at its prevailing price.
2. Lack of Savings
Many individuals save for years to buy a house, but are still short. A personal loan easily fills this gap. Since the loan gets approved fast, it helps buyers arrange the amount without waiting for many more years.
3. Urgent Need
Sometimes, families have to move quickly because of job changes, marriage, or other personal reasons. If you are falling short on funds, it will add more to their inconveniences. A personal loan offers quick access to funds in times of urgency.
4. Appealing Home Loan Offers
Banks and Non-Banking Financial Companies (NBFCs) often provide special offers related to interest rates or easier EMIs. This motivates buyers to buy a house earlier when they get such an offer. If you do not have enough savings, you can take a personal loan.
Here are all the benefits of a personal loan for a house down payment you must know:
Even though using a personal loan for a down payment is a convenient option, it can also drag you into some serious financial trouble. So, here are some risks you need to consider:
1. You Start with Two Loans
The biggest drawback is that you end up with two loans at the same time:
Handling one loan is already a huge responsibility; handling two simultaneously could be quite stressful. It could also put a lot of stress or burden on your monthly budget.
2. High Interest Rates
Personal loans normally carry much higher rates of interest than home loans. While the home loan could be at a lower interest rate because the property secures it, a personal loan may cost a lot more. That makes it very costly in the long term.
3. Higher Chances of Loan Rejection
Banks check your existing EMIs before approving a home loan. If you already have a big personal loan, the bank may think you cannot afford another loan. This can lead to your home loan being rejected or approved for a lower amount.
There are, however, situations in which this option can work, despite the risks.
Using a personal loan for a house down payment is not always a bad idea, but it’s not always a good one either. It completely depends on your financial condition. If you have a high income and a good credit score, it may work for you. But this option creates more stress than comfort for most buyers.
If you have found a house you don’t want to let go, apply for a personal loan with DMI Finance and get the amount needed to make the down payment. The key benefit is that you can get the amount needed at a competitive interest rate.
1. Is it allowed to use a personal loan for a home down payment?
Yes, it is allowed, but many lenders don’t encourage it. Some home loan lenders may ask about the source of your down payment, and high existing EMIs can reduce approval chances.
2. Can taking a personal loan for the down payment delay my home loan disbursal?
Yes, lenders (Banks and NBFCs) can take extra time to review your debt load, which can slow the approval and disbursal process.
3. Will using a personal loan affect my chances of getting a top-up loan later?
Yes, having higher existing EMIs may reduce your eligibility for any future top-up loans.
4. Can I prepay the personal loan early to reduce financial pressure?
Yes, most lenders allow prepayment, but some may charge a small fee depending on their policy.
5. Will my home loan lender ask where I arranged the down payment from?
Some lenders may ask for proof of funds, such as bank statements, to ensure the money is from a reliable source.
6. Can I take a joint personal loan for the down payment?
Yes, some lenders offer joint personal loans, which can increase eligibility if both applicants have steady incomes.
7. Will a personal loan have any impact on my home loan?
Yes. Personal loan raises your EMI to income ratio, which can lower the amount of home loan you can take or even reject the loan in case of a high ratio.
8. Should a personal loan be used as a down payment?
It depends. It is okay when you have a stable income and can afford EMIs. It is, however, risky since the interest rates of personal loans are higher than those of home loans.
9. What will be the interest rate on a personal loan to buy a down payment?
The interest rates charged on personal loans are usually very high compared to home loans. This adds to the overall price of purchasing the property.
10. Will it take me longer to get my home loan approved with a personal loan?
Possibly. The lender might make additional checks to make sure that you are able to pay both EMI payments without being stressed financially.
| Personal Loan of Different Amounts | ||
| ₹50,000 Personal Loan | ₹1 lakh Personal Loan | ₹2 lakh Personal Loan |
| ₹3 lakh Personal Loan | ₹4 lakh Personal Loan | ₹5 lakh Personal Loan |
