Renovating your home is a major expense and unless you have sufficient finances to deal with this situation, you might have to take a loan for this purpose. Consumers seeking to refurbish, repair or upgrade their existing homes can opt for home renovation loans, with many banks and housing finance companies (HFCs) offering this facility either through their regular home loan product or as a separate home renovation loan scheme under the broader home loan category. You can also opt for regular personal loans to cover your home renovation expenses, with some banks and non-banking financial companies (NBFCs) offering personal loan specifically for the purpose of home renovation. Here is a comparison of the features of both personal loans for home renovation and home renovation loans:
Interest Rates
The interest rates set by most lenders for ‘personal loan for home renovation’ is usually the same as the interest rates of their regular personal loan schemes. Private sector lenders usually offer personal loans at interest rates starting from 10.49% p.a., with some public sector banks offering lower rates on their personal loan schemes. The interest rates offered for home renovation loans, on the other hand, are similar to or slightly higher than the rates offered for home loans. Lenders offer home loans at interest rates usually starting from 8.40% p.a.
As personal loans are unsecured in nature, the interest rates for such loan facilities are usually higher than the interest rates offered for home renovation loans. For example, the interest rates for HDFC Bank Personal Loan start from 10.50% p.a. while the lender offers its home renovation loan scheme at interest rates of 8.50% p.a. onwards.
Loan Tenure
The loan tenures set by most lenders offering personal loans for home renovation can go up to 5 years. However, some public sector banks may offer tenures of up to 7 years. Conversely, lenders offer repayment periods extending up to 20 years on home renovation loans, with some lenders offering higher tenures. Most banks/HFCs offer the home renovation facility under their regular home loan product for tenures of up to 30 years. Those seeking lower repayment tenures can opt for personal loans for home renovation. However, as the EMI of your loan is inversely proportional to your loan tenure, opting for loans with shorter tenure leads to higher EMIs and vice versa. Prospective applicants should note that selecting longer loan tenures leads to higher overall interest costs. Therefore, consumers opting for higher loan amounts should apply for home renovation loans as higher tenures lead to a lower EMI burden while those seeking lower amounts should avail personal loans for home renovation to reduce their overall interest costs.
Loan Amount
Lenders usually offer personal loans for home renovation with loan amounts of up to Rs 40 lakh, with some lenders offering higher loan amounts. The lender decides the loan amount for their applicants depending on their monthly income, repayment capacity, etc.
In the case of home loans availed for renovation purposes, lenders decide the loan amount primarily on the basis of the applicant’s repayment capacity and the loan-to-value ratio (LTV ratio) set for his property. The LTV ratio is the proportion of a property’s value that lenders can finance through their regular home loans or home renovation loans. Home loan lenders usually offer loan amounts of up to 100% of the estimated home renovation cost, provided that the LTV ratio set by the lender does not exceed the cap on home loan LTV ratios decided by the RBI. The LTV Ratio offered by home loan lenders is up to 90% for loan amounts of up to Rs 30 lakh, up to 80% for loan amounts above Rs 30 lakh and up to Rs 75 lakh & up to 80% for loan amounts above Rs 75 lakh. Home loan lenders undertake a credit risk assessment based on their applicants’ credit profile, income, repayment capacity, property’s market value, etc. to decide the LTV ratio for their loan applicants.
Collateral/Security
As personal loans are unsecured in nature, those availing personal loan schemes for carrying out home renovation need not pledge any collateral for availing the loan. On the other hand, consumers availing home renovation loans should pledge their constructed or purchased home property as security to the lender.
Loan Disbursal
The loan processing and approval process for home loans is usually more time consuming as it involves several processes including the physical verification of the property pledged as security. In comparison, the processing time for personal loans is usually much faster due to their unsecured nature. Many lenders also offer pre-approved personal loans to their select existing customers with instant or same day loan disbursal. With many banks/NBFCs making their loan onboarding process 100% digital, the disbursal process has become faster and more efficient for personal loans. As a result, many lenders claim to disburse personal loans to fresh applicants within a few hours of loan application. Hence, homeowners seeking faster loan disbursal can opt for personal loan schemes to renovate their homes.
