Personal Loan v/s Home Loan : A Comparison
October 6, 2023

Personal Loan v/s Home Loan

Loans provide valuable assistance by enabling purchases, addressing short-term cash flow shortages or supporting the acquisition of a long-term asset like a home.

Banks, non-banking finance companies (NBFCs), and housing finance companies (HFC) are among the many financial institutions that provide an extensive array of loans tailored to cater to the diverse requirements of consumers. Customers can choose between Home and Personal Loans based on their needs.

What is a Home Loan?

A Home Loan, also called a mortgage, is a sum of money an individual borrows from a bank or another financial institution to purchase or build a house.

A Home Loan or a mortgage is issued at a floating interest rate per the directives of the RBI, and the borrower is required to make monthly instalment payments covering both the principal amount and the accrued interest over the loan’s term.

The duration of the repayment period can vary, influenced by several loan-related factors. Furthermore, a home loan is categorised as secured, meaning the borrower must provide collateral.  In the case of Home Loans, lenders use the borrower’s home as collateral. Hence, when the borrower fails to repay the loan, the Lender can claim a lien on the property.

For What Reasons are Home Loans Commonly Employed?

  • Purchasing a Preexisting Home or Apartment

Among the most common types of home loans is financing for purchasing new or pre-owned properties, with leading Banks like HDFC Bank offering various options in this category.

  • Purchasing a Piece of Land

Various institutions offer land purchase loans, like ICICI Bank, which provides flexibility for land acquisition. Buyers can choose to save and build a home when their resources permit or retain the land as a long-term asset or investment.

  • Building a Brand-New Residence

In this case, loan disbursement is designed for individuals interested in constructing a home from scratch instead of buying an existing one. This type of loan follows a distinct approval process considering the land cost and construction expenses.

  • Expansions and Renovations

Banks Like Axis Bank also offer loans for home expansion, allowing homeowners to alter their existing structures and add extra rooms, balconies, and other features.

What is a Personal Loan?

A Personal Loan is a sum of money individuals can borrow from a bank or a lender to cover various expenses, such as travel, medical emergencies, home renovations, purchase of household items, and more.

Importantly, it’s an unsecured loan, meaning borrowers don’t need to provide any collateral or security to obtain it. Borrowers can repay the loan amount through monthly instalments, which comprise both the principal and the interest charged by the lender or bank. Also, one can avail of Online Personal Loans without much effort.

For What Reasons are Personal Loans Commonly Employed?

  • Wedding

Personal Loans can help cover the substantial costs of weddings, from venue rentals and catering to attire, enabling couples to have their dream wedding without draining their savings.

  • Family Celebration

Personal Loans can fund family celebrations like birthdays, anniversaries, or reunions, making it possible to host gatherings and create cherished memories for loved ones.

  • Medical Expenses

Medical emergencies can be unexpected and costly. A Personal Loan can provide the necessary funds to cover medical bills, surgeries, or treatments when health insurance falls short.

  • Debt Consolidation

By combining multiple high-interest debts into a single, lower-interest personal loan payment.

  • Emergency Expenses

For addressing unforeseen medical expenses, vehicle repairs, or other immediate financial requirements.

  • Home Improvement

You are funding renovation projects or repairs to enhance your living space.

  • Education Expenses

Paying for tuition, textbooks, or other educational costs

  • Travel and Vacation

Financing dream vacations or travel experiences.

Home Loans vs Personal Loans: Important Factors to Consider

  • Documentation

Home Loan: Home Loan applications involve extensive documentation. Borrowers must provide property-related documents (like title deeds and property valuation reports) and personal financial documents.

Personal Loan: Personal Loan applications generally require fewer documents than Home Loans. Borrowers need to provide proof of income, identification and residence proof.

  • Collateral

Home Loan: Home loans are secured loans where the property being purchased or refinanced serves as collateral. The lender has a claim on the property until the loan is fully repaid.

Personal Loan: Personal Loans are typically unsecured, meaning no specific collateral is involved. Lenders grant these loans based on the borrower’s creditworthiness, income and ability to repay.

  • Amount

Home Loan: The amount issued as a Home Loan depends upon the property’s value and the applicant’s income. The amount you qualify for can vary among various lenders. The loan amount is sanctioned after the requirements of the Bank or lender are fulfilled.

Personal Loan: Banks and financial institutions offer an amount from ₹ 1 Lakh to ₹ 30 Lakhs. It is important to note that this amount differs according to the policy of the specific lender or Bank and the applicant’s ability to pay the EMI.

  • Tenure

Home Loan: Home Loans usually involve longer repayment terms, ranging from 5 to 30 years.

Personal Loan: Personal Loans typically have shorter repayment terms, ranging from 1 to 5 years.

  • EMI Payments

Home Loan: Because of the longer repayment duration associated with a Home Loan, the monthly EMI is less than that of a Personal Loan.

Personal Loan: In contrast, Personal Loans have a shorter repayment duration, resulting in higher EMIs.

  • Processing Time

Home Loan: Home Loan processing usually takes two to three weeks, but any missing documents or the builder’s qualifications can cause additional delays.

Personal Loan: The advent of e-banking has further accelerated the approval and disbursement of Personal Loans. In some cases, new clients can receive immediate loan approval and have the funds transferred within 24 hours.

  • Interest Rates

Home Loan: Home Loans generally offer lower interest rates than unsecured loans due to the collateral involved. Home Loan interest rates in India range from 6.9% to 8.5%. The interest rate is calculated as a floating rate and can change as per the directive of the RBI.

Personal Loan: Due to their unsecured nature, Personal Loans typically feature significantly higher interest rates, from 9.6% to 22%, depending on the borrower’s unique profile. Lower credit scores correspond to higher Personal Loan interest rates, whereas higher credit scores translate to lower interest rates for borrowers.

  • Tax Benefits

Home Loan: Home Loans offer tax benefits that enable borrowers to reduce their income tax liability.

Personal Loan: Personal Loans generally do not offer tax benefits.

Home Loan vs. Personal Loan: A Quick Comparison

Distinguishing Factors” Home Loan Personal Loan
Type of Loan Secured Unsecured
Interest rates 6.65%-9.90 % 8.95%-21.30%
Amount disbursed Rs 15 lakhs – Rs 10 crores 1 Lakh to Rs 60 Lakhs
Tenure 5-35 years 12 to 60 months
Processing time 3-4 weeks Instant
Benefits Taxable Not taxable*

Tax Benefits of a Home Loan

Personal Loans generally lack tax benefits since they are typically used for personal expenses or consumption. On the other hand, home loans may offer tax advantages as they are utilised to acquire property, considered a long-term asset.

The Income Tax Act of 1961 allows for tax deductions on the interest paid for a home loan under Section 24(b). Individuals can claim deductions of up to INR 2 Lakhs on the interest paid for a self-occupied property. In the case of a let-out property, there is no maximum limit for tax deductions on the interest paid.

Furthermore, suppose an individual has obtained a home loan to purchase or construct a house. In that case, they are eligible to claim a tax deduction of up to INR 1.5 Lakhs under Section 80C of the Income Tax Act, 1961, for the repayment of the principal amount of the loan.

Eligibility Criteria For Home Loan

Property Details

The property itself can affect eligibility. Lenders may have criteria regarding the property’s type, location, and condition. Hence, the property should be approved by the bank.


Lenders like YES Bank often have age criteria, with borrowers typically needing to be at least 23 years old and not exceeding a certain age (usually around 65 to 70) at the time of loan maturity.


Your income is a critical factor in determining eligibility. Lenders assess your ability to repay the loan a stable and sufficient income is usually required. Both your gross and net income may be considered.

Employment History

Lenders typically favour applicants who possess a consistent work record. Having a constant job for a certain period may be a requirement. However, the customer company is not essential for home loans.

Credit Score

A good credit score is essential for Home Loan approval. Lenders use your credit history to assess your creditworthiness, and a higher credit score often leads to better loan terms. So, you should have a credit score of at least 700 points.

Down Payment

You’ll need to make a down payment, a percentage of the property’s purchase price. The amount required can vary but is typically around 10-20% of the property’s value.

Debt-to-Income Ratio

Lenders calculate your debt-to-income ratio (DTI) to ensure you can manage your existing debts along with the new home loan. A lower DTI is usually more favourable.

Personal Loan Eligibility Criteria


For a Personal Loan, a minimum age requirement of 21 years applies to most Banks and lending institutions. The loan repayment must be completed before the applicant is 58 or until retirement.


The monthly income criteria are essential for Personal Loan Eligibility customers must have a minimum monthly income of 30k. Lenders assess your repayability, so a stable income is still necessary.

Credit Score

A good credit score is vital for Personal Loans as well. However, some lenders may offer personal loans to individuals with lower credit scores, although the interest rates may be higher.


Borrowers with a steady employment history are commonly the preferred choice for lenders. Having a consistent job or a regular source of income is typically required. The company must feature in the approved sourcing list of the lender.


You’ll need to provide various documents, including identity proof, address proof, income statements, and bank statements, per the lender’s requirements.

It’s important to note that eligibility criteria can vary between lenders for both Home Loans and Personal Loans. Therefore, it’s advisable to check with specific lenders or financial institutions to understand their precise Home Loan and Personal Loan Eligibility Criteria when applying for either type of loan.


Though the underlying concepts are the same, Home and Personal Loans serve distinct purposes. Therefore, it is crucial to comprehend their unique features before opting for either.

This understanding can significantly aid in financial planning and credit needs to be taken with care, helping to build a lifestyle and a future.

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