Personal Loan: Want to renovate your house? You may want to opt for THIS loan to save money

It is understandable that procuring a personal loan is the last resort for a lot of people. Every time a salaried individual encounters financial trouble, the first option that s/he thinks of is to procure a personal loan.

A personal loan is an unsecured loan which can be processed seamlessly by applying with a bank or an NBFC and it helps the borrower sail through a financial hiccup with ease.

Personal loans can address a slew of financial needs of borrowers such as to buy an expensive item, go on a vacation, or to meet a medical emergency. However, there are a number of financial needs, which can be fulfilled by procuring a personalised loan instead of a personal loan which is more generic in nature.

Here, we are referring to the home improvement loan. As your family expands, you might have to add a floor or bathroom to the existing house. A specific home improvement loan from a financial institution can help you meet this requirement. Home improvement loans are offered by a number of financial institutions such as Bank of Baroda, Kotak Mahindra Bank, Aditya Birla Capital, Aadhar Housing Finance and PNB Housing, among others.

Let us understand the nuances of home improvement loans in detail here.

Reasons to opt for home improvement loan over personal loan:

A. Lower interest rate: Although it is not a rule of thumb, there are certain financial institutions which offer loans for home improvement at a lower interest rates when compared with personal loans.

B. Temptation to spend on other purposes: When you apply for a personal loan then you can use it for anything and everything. There could also be a probability of some overspending since there is no accountability of where the money actually goes. However, when you seek a home improvement loan then you would, of course, spend it on a capital investment.

C. Clash with other personal loan: You may have an existing personal loan that you perhaps took for some other purpose or you may plan to take it in the near future. In such a case, seeking a loan for home improvement makes sense so that it does not clash with your other loan requirement.

D. Tax benefits: Unlike personal loan, home improvement loan enables taxpayers to claim tax benefits against the interest paid on loan.

Interest rate on home improvement loan: While some financial institutions charge as high as 13-15 percent interest on their personal loan, one can get a home renovation loan at a far cheaper price.

For instance, ICICI Home Finance mentions on its website that borrowers (who have been servicing a loan for the past 2-3 years) can shift to them so long as their rate of interest is more than 11 percent per annum.

Documents required for home improvement loan:

1.Form: An applicant needs to submit a fully-filled application form.

2. ID proof: Identity and residence proof (KYC), such as Aadhaar, PAN card, Voter ID card, Job card issued by NREGA, etc.

3. Income proof: Last two months’ salary slip, Form 16 and 3-month bank statement

4. Property documents: The bank could also ask you to show the documents of property that you intend to renovate.

Eligibility to apply for home improvement loan:

A. Nationality: Applicant should be an Indian resident to apply for home improvement loan.

B. Age limit: The loan is typically given to the applicants who fall in the age group of 23 to 60 (for residents) and 25 to 60 (for NRIs).

C. Co-owned property: Some financial institutions such as ICICI Home Finance offer better interest rates to women to encourage them to apply as co-applicants. So, it is recommended to add wife or mother to the application even if they are not earning

Frequently Asked Questions (FAQs):

What is a home improvement loan?

It is a category of home loan to renovate a house and to fund the repairs. The money can be used for home renovation which includes painting and whitewashing, tiling and flooring, waterproofing, plumbing and sanitary work, among other functions.

Who is eligible for a home improvement loan?

Home improvement loans can be availed by any individual — salaried or self-employed who has a regular source of income.

Can one buy furniture with the proceeds of a home improvement loan?

Typically, home improvement loans can not be used to buy movable items such as furniture.

Are there any tax benefits for seeking a home improvement loan?

Yes, there are tax benefits up to ₹30,000 against the interest paid on home improvement loans.

What is the maximum tenure for a home renovation loan?

The maximum tenure for home renovation loan is 20 years but the project should be completed within one year.