Your family is growing, and now it is time to purchase a place your children can call home and happily grow in. But the problem is you don’t have enough funding to buy the house of your dreams. So what to do?
If you do your research, you will find that there are two typical options to purchase a home. Both will incorporate applying for a loan at a financial institution. You can either apply for a personal loan or a home loan which is also known as a mortgage.
So, what is the difference between both options, and which one is better for purchasing a residential property?
A home loan is meant to help purchase a home or construct one and is considered a secured loan. What does the term “secured loan” mean? It means that when you apply for a home loan, you will offer the lender collateral to serve as a security. Usually, the home you will purchase with the loan will be the collateral. In case you couldn’t repay the loan, the lender will take the property back to cover your loan.
On the other hand, a personal loan can be used for multiple purposes and is an unsecured loan. So when you apply for a personal loan, you won’t have to offer any collateral.
Personal Loans vs. Home Loans
Unlike personal loans, with home loans, you will get to apply for a larger amount. The reason behind this is that home loans are secured loans. Therefore, the lender has a security to cover the amount of the loan if you had problems with the payment.
Being secured, a home loan offers a less interest rate when compared to personal loans.
The length of time you would take to repay the loan differs between personal loans and home loans. With home loans, the lender will grant you a longer tenor ranging from 5-30 years, while in personal loans, the tenors would range from 12-60 months.
EMI refers to Equated Monthly Installment. It is the amount of money you have to pay the lender on a specific date each month until you clear your debt. Home loans have a lower EMI since it takes longer to be repaid. While in personal loans, you will have a shorter period of payment which means the installment amount will be bigger.
Which One to Choose?
If your goal is to purchase a home, then a home loan is your best option. It is designed for this purpose, which means that you will get better terms. You will get to apply for a large amount of money that will cover the price of the residential property you have in mind.
You may worry about the collateral part and not being able to pay back the loan, but this should be nothing to worry about if you have a solid financial plan to track your income and expenses.
Put an initial plan on how to keep your finances on track and adjust it along the way if you were faced with any changes. This will help you keep up with the monthly installments and eventually paying the loan, and building memories with your family in the home of your dreams.