Rajesh was very happy on identifying his dream home for Rs 50 Lakhs. Just as Rajesh was all set to buy the property, his world came crashing down when he approached the bank and coming to know that the maximum home loan he could avail as per his eligibility is Rs 40 lakhs. Rajesh had saved Rs 5 lakhs for a rainy day but even then he was not reaching the target of Rs 50 lakhs.
Rajesh is not a case in isolation and a lot of us have faced similar problems. So what are the options in front? Let us take a look at some of the possible alternative loan options that can help Rajesh in purchasing his dream home.
Personal Loan: Personal loans are arguably the most commonly used loan options to raise funds for any personal needs. Various public and private sector banks offer personal loans to its customers after checking their credit rating and income documents. If your home loan is disbursed first, and if the amount is your maximum eligibility, there are less chances for sanctioning a good amount as personal loan.
So it is ideal to apply for a personal loan before the disbursement of a home loan. Or in other words, the personal loan application can be forwarded soon on getting information from the bank.
Personal loans are quick to be administered because they do not require elaborative paperwork and are sometimes passed in as early as one working day. Funds from personal loans can be used as per the wishes of the customer making them serve a wide range of purpose. On the downside, strict eligibility criteria, higher rate of interest and lack of part payment facility means the borrower has to effectively keep paying the EMI for the entire tenure of the loan.
Gold Loan: Gold is part of almost every Indian household. Rather than lying idle ion some back locker, one can use gold or gold jewellery to raise funds. What’s more the interest rates for gold loans are much lower than personal loans and gold loans offer no prepayment penalties. With both banks and non banking financial institutions empowered to offer gold loans, the loans are sanctioned within a couple of days offering loan amount as high as 80% of the gold deposit.
Loan against PPF: If you are investing in Public Provident Fund for a minimum period of three years, then you can get a loan against the amount deposited in your PPF account. Loans on PPF are offered between the 3rd and the 6th year with a maximum tenure of 36 months. Interest rates will be 1-2% more than the prevailing interest rate of the PPF account.
Loan against Fixed Deposits: Availing a loan against your bank fixed deposits is a great way to combat temporary financial needs. Banks offer a loan amount of 70-80% of the total value of the FD as loan. The interest rate charged for loans against FD is 1-2% higher than the interest received on the fixed deposits. If you earn 8% interest in your FD, then you would be paying 9-10% interest on the loan amount. The downside if any is that the loans must be paid back before the tenure of the FD ends.
Loan against Securities: Just like insurance policies and fixed deposits, users can avail loan against certain securities like mutual funds and shares. Each bank has a list of approved mutual funds or companies whose shares can be offered as collateral to avail loans. The interest rates for loan against securities vary from 9% to 13% depending on the risk involved. Check with your bank if you are eligible for this.
Bridge Loan: If you are waiting for funds by selling off your old or existing property before buying a new one, bridge loans suit you. Bridge loans lend money for downpayment to buy the new house till the time your current house gets sold. The maximum tenure for bridge loans is 2-3 years and the interest rate varies between 14%-18%.
Comparison of Various Home Loan Alternatives:
|Rate of Interest
|Pre Payment Charges
|Best Suited For
|Short term finances in absence of security
|Loan Against FD
|1-2% more than FD interest Rate
|Before Fixed Deposit Is Matured
|Any personal needs, if you have an FD with the bank
|Loan Against Securities
|Initially one year, can be extended
|Any personal needs
|12 to 36 Months
|Short term loan option for buying new property till older property gets liquidated
BankBazaar.com is a one-stop online space where you can compare rates of all loan and schemes of different banks to choose the best-suited plan for you.