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In India, having a shelter of your own holds utmost importance. Once people reach a decent income level, having their own house tops their To-Do list. Middle-class people opt for home loan facilities to meet the gaps, and the ones who are wealthy consider a home loan to save tax.
However, there are many people who wish to close their home loan as soon as possible to get rid of stress. Apart from this, a home loan is a debt with a very high value wherein repayment takes years. So the question is should you pay off a home loan early?
Repaying home loan early is a perfect idea for people who have borrowed huge amount at the high-interest rate. Under such circumstance, people normally opt for a different option to clear their home loan.
What are the available options that people look for to clear housing loan?
- Some people consider taking money from their friends or relatives to clear the housing loan amount. The benefit is that there will be minimal or no interest levied on the amount borrowed.
- People with other savings or fixed deposits consider these options to get rid of home loan burden.
- The last option that people consider is taking a personal loan to pay off a home loan.
A personal loan is an unsecured loan given by the bank for reasons that the applicant need not disclose. The bank charges processing fees and based on your repayment ability the amount gets credited to your bank account. Availing personal loan is pretty easy these days and most of the banks are willing to offer the same. However, a lot depends on your credit score and repayment history to get the loan sanctioned at reasonable interest rates.
Document’s required for availing Personal Loan
Below is the list of all the documents that the applicant needs to submit to the bank to get a personal loan sanctioned:
- Properly filled in Loan Application form
- Signature proof – Driving Licence, PAN Card, Passport
- Valid Identity proof like Passport, Voter’s Card, Aadhar Card, Voter’s Id, Ration Card or any other Identity Proof accepted in India.
- Bank account statements for the last six months.
- Form 16 and last 3 months salary slips
- Residence Proof like Passport, Gas bill, etc.
- Proof of Age – Birth Certificate, Driving License, PAN Card.
Benefits of Personal Loan
- There is no need for the applicant to show any security.
- One of the most outstanding features of personal loan is there is no need to disclose the reason for availing the loan.
- There is no need for you to offer a guarantor to the bank for the borrowed amount.
The bank takes its call entirely on your salary or income. However, do not forget that the lenders are smart and hence the barriers are very rigid. For first time applicant, the bank will scrutinize your work history, the company you work with and your annual income. All these factors play a crucial role in determining the interest rate at which the bank will offer you the loan amount.
If you are lucky enough to match the above-mentioned criterion, then please note the following drawbacks, as well.
- The interest rate is Very High.
- You need to have a good credit score.
The main reason behind this is that the bank is not taking any security for offering the amount. Hence, for security purpose, the bank levies high rate of interest. A personal loan is different from other loans. It’s an unsecured loan wherein there is no guarantor or security pledged with the bank. So there is a big risk involved in approving the personal loan. Hence, the rate of interest is high.
Should you take a personal loan to clear home loan?
After understanding the nature of a personal loan, let us analyse weather it is wise to opt for a personal loan to clear the home loan.
1. Compare Interest Rates: Before you take this decision of clearing home loan by taking a personal loan, look for the rate of interest that you will pay against both these loans. A personal loan is attached with the high-interest rate. However, if your home loan rate is higher than that of personal loan, then it is wise to borrow the amount from the bank to clear home loan amount.
2. Tenure: Normally people opt for a personal loan when only a few years are left to clear home loan dues. That’s when people consider other possibilities to clear the debt. If you have a good rapport with the bank, which would trust you and offer you a personal loan at a decent interest rate, then it’s wise to clear the same provided the tenure of repayment of a home loan is not too vast.
3. Existing Loans: There are chances that you already have a personal loan to clear. Under such circumstance, it will be difficult to avail another personal loan. And even if you get the loan sanctioned, the rate of interest will be extremely high. Under such circumstance, it is wise that you continue paying home loan rather than opting for any other option.
4. Default: If you have been defaulting your home loan EMI frequently, it is wise to opt for a personal loan to clear your arrears before the situation gets worst.
If have a good credit history and have resources to repay the borrowed amount with interest on time, then you will get a personal loan easily. All you need is a bit of research to get the best deal in terms of tenure and interest rates.
A personal loan is the most convenient answer to meet your emergency financial needs. However, be practical and keep it as a last resort. Evaluate the pros and cons thoroughly before opting for a personal loan. If you are at a stable income level, then it is better to make home loan repayment gradually as per the tenure decided. Pay gradually; enjoy tax exemptions while enjoying the hard earned shelter of your home.