Can You Use a Personal Loan to Pay Down Payment of a Home Loan?

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Buying a home is always a more ambitious milestone for many in India. It would help if you had efficient financial planning to make sure that you do not struggle for funds to own a home. The down payment is an integral part of a home loan, where you finance 10% to 25% of the value of the house and get the remainder from your lender. Note that the more down payment you make, the less is your repayment obligation.

You can always use your surplus funds, opt for a scheme which offers lower down payment and liquidate your existing investments, but you still would need a significant amount of funds as a down payment. In such cases, personal loans come to your rescue as they might be the only option left for you to consider. Taking two loans at the same time can seem like a burden to you, but if your lender approves of such arrangements, you may want to explore best personal loan interest rates in the market.

Here’s how you can manage to avail a personal loan for your home loan down payment:

Negotiate on the Down Payment: There are various options available where you can opt for a lesser down payment. Typically, lenders prefer cash in hand as down payment and hence getting a personal loan might not be viable for them. In such cases, they might want to lower the down payment. You can also take up a loan from another financial institution based on your credit score and use it as a down payment.

Higher Credit Score: Higher credit score means that you can negotiate the personal loan interest rates with your financial partner by which you can manage the repayment process well. Such action will also help you manage your EMIs for your home loans as you will be liable for two EMIs in a month.

Keep your Savings intact: Most of the financial experts will advise you to use your savings for a down payment which also means that you might not have any surplus fund left for the future. If at all you face any emergencies in the future which might need funds, you don’t want to look helpless. Hence taking an optimal amount of personal loan is advisable as you will have some chunk of savings reserved the less fortunate days.

Support from Financial institutions: Nowadays, every financial institution is more than willing to offer their customers, their suite of products. For example, you have taken a home loan for a bank; they will also encourage you to take up a personal loan from them at a lower rate of interest. You can leverage such support to your benefit.

Flexible Repayment Options: Personal loan may be unsecured, but they have a lot of flexibility in terms of tenure. You can opt from 1 year to 5 years of tenure based on your requirement, which will help you to plan your finances well in advance.

The Broad Range of Funds:NBFCs are ready to offer personal loans up to Rs. 40 lakhs to borrowers based on their requirements. Hence one can analyze their financial strengths and take up a personal loan to pay their down payment amount.

Planning your Repayment Process: No financial institutions prefer providing loans which have more than 40% of your take-home salary as EMIs. Although NBFCs assess your credit history before offering new loans, you might not want to burden yourself with excessive EMI amounts. If you are careful about the above factor, you might have a smooth repayment period.

Personal Loan Benefits:

  • It is easier to get approval for the personal loan provided that you meet the requirements
  • NBFCs offer instant loans by which the entire process can be online
  • With flexible tenures, you can plan your finances in an organized way
  • Most of the financial institutions provide lesser processing fee to avail personal loans

Documents Required for a Personal Loan:

  • Completed personal loan application form with a recent photograph
  • Proof of identity (voter ID card or driving license or PAN card, or passport copy)
  • Address proof (ration card or telephone bill or rental agreement or passport copy or driving license or bank passbook or electricity bill)
  • Proof of age (PAN card, passport, or certificate from a statutory authority)
  • Salary slips from the last three months
  • Form 16
  • IT returns

Conclusion: To achieve the dream of your own house, you will want to apply for loans, but if you are careful enough to plan your finances, you can have a trouble-free repayment phase.

Jyoti Dhiman
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