Taking personal loan for home renovation: Key advantages and shortcomings explained

There are typically a number of reasons which people tend to take a personal loan. From personal emergencies and overseas holiday to higher education -- loan is typically raised for a slew of reasons. Another reason why it is quite common to take a loan is to get the house renovated. 

This is believed to be a constructive use of a loan that also leads to the appreciation of the asset price.

Let us understand some key advantages of raising a personal loan for home renovation:

I. Immediate disbursal: Most of these personal loans are disbursed immediately. Several banks offer instant loans, which are given in as little as 20 minutes.

II. Unsecured: As one can imagine, personal loans are unsecured and do not require any collateral. This means you do not need any assets as security to be able to raise the loan.

III. Complete flexibility: One can borrow money for renovation and even use it for miscellaneous works such as fittings and painting. You can also decide how money is allocated to which activity, i.e., adding a room, tiles, and doors. This leaves a lot of scope for how you want to spend your money.

IV. Fixed interest: Since personal loans are given at fixed rates of interest, the EMIs are fixed during the loan tenor. As a result, you can plan your budget accordingly.

V. Simple process: Raising a personal loan is seamless and straightforward. You only need to get the eKYC done and show income proof before the lender sends money.

Precautions to take

However, it is also vital to be careful before you sign up for it. These are a few things to be careful about:

I. Evaluate need and return: Before you sign on the dotted line, make sure you need the renovation and the added room or floor would either fulfil your need or add to your income.

II. Compare lenders and interest rates: Amid multiple options for raising a loan, it is vital to compare the lenders and interest rates. And as one could imagine, it is recommended to opt for the one that charges the lowest interest. A small difference of 100 basis points can lead to a considerable difference over the loan tenor.

III. Evaluate your financial readiness: Additionally, it is important to be sure of your financial soundness before raising a loan. The fixed instalment can add to your burden.

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