Considering Personal Loan To Make Down-Payment For Property? Read This
One can go on and on about why you should have saved enough money to be able to make the down-payment for your house purchase. In fact, it would only have been better if you had saved enough funds to bear the additional costs that come along with a property purchase. But, fact of the matter is, you could not. Now, your need for booking a property is quite pressing. You may not have much choice in the matter and have to apply for a personal loan to make the down-payment now. Before doing that, you must make yourself aware of certain facts.
You may be already aware that the interest rate for personal loans is much higher when compared to the rate of interest banks charge on home loans. As it stands today, you could get a home loan at an interest rate of 8.35 per cent. Public lender State Bank of India is offering this rate for home loans of up to Rs 30 lakh. For over Rs 75 lakh, the interest rate is 8.65. The rate on interest on personal loans, on the other hand, can go much higher. Banks in India charge an interest ranging from 11 per cent to 20 per cent. It must be noted here that most personal loans are unsecured loans where a borrower does not have to provide collateral. Hence, a higher interest rate.If you work for a rated company, SBI charges interest from 11.90 per cent to 14.50 per cent. In case you do not work for a rated company, the charges may range between 12.65 per cent and 14.75 per cent. Needless to mention, the total cost of your house purchase would jack up substantially if you use personal loans to make the down-payment.As a rule, banks do not prefer a borrower spending more than 40 per cent of his monthly take-home salary for repaying loans. This may create an unbalance in combining the two loans i.e. your home loan with a personal loan. Let us understand it with an example.Suppose you want to buy a house of Rs 30 lakh. For this, you can get a home loan of Rs 24 lakh which is 80 per cent of the total value of the property. This means an EMI of Rs 20,600, for a 20-year tenure at an interest rate of 8.35 per cent. The remaining Rs 6 lakh is needed to make the down-payment. If you take a personal loan for this and want to pay it off in, say, four years at an 11.9 per cent interest rate, the EMI on your personal loan will be Rs 15,771. So, your total EMI outgo for a month would be Rs 36,371. For a lender to approve these two loans with a combined EMI of Rs 36,371, your monthly income should be about Rs 91,000 — the sum of all your EMIs cannot exceed 40 per cent of your net monthly income.In case your monthly salary is less than the amount mentioned, you may have to slash the home loan amount to maintain that the ratio.Availing of two loans also means paying two EMIs (equated monthly installments) . You have to prepare yourself accordingly to manage your monthly finances after the repayment process starts.Also be mindful of the fact that you may find it difficult to apply for another loan in case of any emergency.A borrower gets tax benefits on personal loan if he is going to use the funds to make the down-payment for a property purchase or carry out renovation work. A borrower can claim up to Rs 2 lakh on the interest paid against the personal loan.