Difference between Home Loan and Personal Loan

Personal loans are unsecured loans taken for fulfilling some personal purpose. Home loans are secured loans taken for the purpose of buying a house. The house that is bought from the home loan also serves as the collateral or security for the loan.

What Is A Home Loan?

A home loan is also called a home mortgage loan and offers a convenient financial instrument specially customized for buying a house. Home loans are long-term loans offered by banks and various other financial institutions, including housing finance companies. Such a loan makes a person's dream of acquiring a home come true.

Home loans are secured loans where the property itself acts as collateral. Moreover, opting for home loans also comes with some key advantages, which are listed below:

• Home loans offer extended periods for repayment, thereby reducing the burden of huge monthly installments.
• Home loans come with tax benefits where individuals can secure tax savings on both the interest and the amount of principal.
• Through a home loan, one tends to invest in a property that can act as an asset in the future once the loan amount has been successfully repaid.

What Is A Personal Loan?

A personal loan is an unsecured loan where the borrower takes out a loan for various purposes like financing a wedding, meeting unexpected expenses, covering medical bills, opting for a dream vacation, or even consolidating debt. This kind of loan doesn't require collateral. The lender solely judges the borrower's creditworthiness, employment history, and income stability to determine loan eligibility. Therefore the convenience and flexibility of personal loans make them a viable option for many. The key advantages of opting for a personal loan are listed below:

• No restriction on the use of the fund approved. They can be used to meet any personal expenses.
• Personal loans don't come with collateral requirements.
• The processing of personal loans is done quickly.
• The repayment schedule of personal loans is fixed over an agreed period of time.
• The repayment is typically made through monthly installments.

Key Differences Between Personal Loan And Home Loans

Let's look at all these points of difference between home loans and personal loans in detail:

• Purpose Of Loan:

  The purpose of a home loan is specifically for buying a house. While on the other hand, a personal loan can be issued for various purposes or to meet any personal expenses.

• Repayment Tenure:

  Home loans have longer repayment tenor, which is usually 15- 30 years. At the same time, personal loans come with shorter tenure for repayment.

• Tax Benefits:

  Home loans may offer potential tax benefits for the borrower on the interest payable, but personal loans do not provide any tax benefits.

• Involvement Of Collateral:

  As property is purchased through a home loan and that property also serves as collateral, it is considered to be a secured loan. In contrast, personal loans are unsecured loans as they don't involve the requirement of any collateral and are entirely based on the borrower's creditworthiness.

• Approved Loan Amount:

  For home loans, lenders generally offer higher loan amounts as their main purpose is to purchase a property. Home loans typically depend on the value of the property. In contrast, personal loans come with the approval of a fixed amount, which is based on the borrower's creditworthiness.

Conclusion:

While both types of loan offer access to funds, their main differences are characterized by their purpose, amount of loan, repayment terms, collateral involvement, and interest rates, among many more. Considering the individual needs and the purpose behind taking a loan is essential to determine which one to opt for.