Personal Loan for Home Renovation: Is It Worth It? Pros, Cons & Tips

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Home Renovation can create a new life in your living space. Whether you’re planning to upgrade your kitchen, add a new decorated room, or give a new look to your home. However, renovation can be challenging when you don’t have the funds, so a personal loan provides a solution to this situation. A personal loan gives you quick funds without taking any collateral.

Now, you may have a question in mind: Is it worth taking out a personal loan for home renovation? That’s why in this blog, we’ll explore the pros and cons and help you to decide whether taking a loan for renovation is the right choice or not.

Table of Contents

Why Consider a Home Renovation Loan?

Home Renovation gives a new look to your home, and many times, home renovation increases the money value of your home. A personal loan helps you get the funds for renovation when you don’t have enough funds. Here, we’ll discuss some reasons why people choose a personal loan for renovation.

Kitchen Upgrade: You can upgrade your kitchen with new appliances, modular cabinets, or better countertops, which improves the efficiency and gives an aesthetic look to your kitchen.
Plumbing and Electrical Work: You can fix the leak, upgrade pipes, and rewire old electrical systems to ensure the future’s safety.
Repainting and wall treatments: A fresh coat of paint or textured finishes can instantly refresh your home’s look.
Interior design: From new flooring to stylish furniture, renovating interiors can enhance comfort and appeal.

What is a Personal Loan for Renovation?

A Personal loan for home renovation is an unsecured loan, which gives you funds for upgrading, repairing your home without requiring any collateral. For this type of loan, you don’t need a house for security as collateral. A personal loan makes the process easy, quick, and accessible.

Key features of a personal loan for home renovation

Unsecured and flexible usage: So, as we discussed above, there is no need for collateral; approval will be based on your creditworthiness, and this loan amount can be used for any renovation, whether it is for remodelling the kitchen, fixing the leaks, or repainting the walls.
Loan Tenure: Loan tenure ranges from 1 year to 5 years. It allows borrowers to choose the repayment period according to their budget.
Interest Rates: Interest rates vary from one lender to another. Typically 10% to 24% per annum. Borrowers who have strong creditworthiness get lower interest rates.
Eligibility Criteria: Eligibility criteria work on some factors:

Age: It varies from lender to lender ( Typically 21- 65 Years)
Income: For a salaried person, the monthly salary should be ₹25,000.
Credit Score: 650+ is a preferable credit score, but 650+ is a better credit score for getting the lower interest rates.
Employment Stability: At least 1 or 2 years of job stability.

Advantages of Using a Personal Loan for Renovation

When you need funds for home renovation, a personal loan would be a good choice, but why and what are the advantages of taking a personal loan for home renovation? We’ll discuss below.

No Collateral required: A Personal loan is an unsecured loan. So you don’t need collateral to get the funds. A personal loan makes it easier for homeowners to give a fresh look to their home.
Quick disbursal for urgent fixes: Do you want to fix the home leaks, roofs, and broken plumbing immediately? So here personal loan fixes it with fast processing and approval. You don’t need to wait for urgent repairs.
Flexible Repayment Options: Most lenders give tenures ranging from 3 months to 4 years. Borrowers can choose the repayment period according to their budget.
Ideal for small to medium budget renovations: A personal loan is a practical solution for small to medium budget renovations. It covers kitchen upgrades, bathroom remodeling, and wall repainting without a huge investment.

Drawbacks to consider

Personal loans provide funds with convenience, but they have some limitations too that borrowers should consider while applying.

1. Higher interest rates vs secured loans

Personal loans are unsecured loans, which is why lenders charge higher rates of interest in comparison to secured loans such as home loans.

2. Limited tax benefits

A personal loan doesn’t provide a tax deduction on interest payments. If you take a loan for home improvement, or you have a self-occupied property, then you can claim the tax deductions.

3. EMI burden if not planned well

Personal loans give you a shorter time period. So if you take a loan beyond your repayment capacity, then it will strain your monthly budget.

Alternatives to a Personal loan for renovation

If a Personal loan doesn’t suit you, then you have other alternatives too. These alternatives have their pros and cons; we will discuss them here.

1. Top up home loans

You can take this loan on your existing home loan with collateral.

Pros: Top-up home loans give you lower interest rates, longer repayment tenure, and the benefits of tax deduction.

Cons: Need an existing home loan with good repayment

2. Home improvement loans from banks

You can take specialized loans on your property as collateral.

Pros: it offers you lower interest rates and gives the benefit of tax deduction on self property.

Cons: These types of loans need strict requirements because they ask for property papers. And they have a limited renovation purpose.

3. Loan Against Property

You can borrow the loan from your home’s market value.

Pros: Offers you lower interest rates and a long tenure period.

Cons: If you are unable to repay, you will lose your property. And they charge the processing fees, too.

4. Credit Cards or savings

Credit

Pros: If you repay your credit amount, then you have an option for interest interest-free period and instant funds.

Cons: If you don’t repay the amount, you will get low limits and higher interest rates.

Savings

Pros: You don’t need to pay interest on savings.

Cons: It depletes your emergency funds.

Tax Benefits on Renovation Loans

When you borrow loans, some loans provide the benefit of tax deduction, but taxes vary for the loan types. Here’s how you maximize it:

Deduction under section 24

Paid Interest is deductible up to 2 lakhs for a self-occupied property.
There is no interest deduction in personal loans.
Interest deduction is allowed only for home renovation under Section 24.

Tips for managing Renovation costs

Renovating your home is a good decision costs can spiral quickly. Here, we’ll understand how to stay in control of your budget, so that you can use a personal loan effectively.

1. Prepare a detailed budget.

Write down all expenses on paper and focus more on urgent repairs before cosmetic upgrades.

2. Common loan options and interest rates

Bank, NBFC, and lenders all give varying interest rates. Compares all for processing fees, prepayment penalties, and EMI flexibility while borrowing the funds.

3. Use EMI calculators

Use EMI calculators for checking the monthly EMI impact. Open the EMI calculator, enter the loan amount, tenure, and rate. Longer tenure reduces EMI but increases the total paid interest.

Conclusion

A personal loan for home renovation is a better solution for urgent and mid-term budget needs. Because it gives you funds without asking for collateral. However, its higher interest rates and lack of tax benefits make it less ideal for long-term financing and large-scale projects. Before borrowing a personal loan, assess the urgency, cost-effectiveness, and potential investigation of your renovation. And remember to compare the loan options and plan your EMI wisely. If you have qualified, then try to find out the other loan options too, like a top-up home loan. If you plan your loan with a good planning then it will transform your living space into a beautiful space. Apply for a personal loan with your budget and goal.