Hello team , Need Suggestion for Loan type . Is it better to go for House and personal loan combined ? As my banker is providing Personal loan with good interest rate . Eg: For loan amount of 50l 20l for personal loan , 30l for home loan . Is it good idea or could you suggest any better solution ?

Ans: Firstly, it’s great that you are considering your options carefully. Combining a home loan with a personal loan can be beneficial under certain circumstances, but it’s essential to understand the nuances of each loan type before making a decision.

Characteristics of Home Loans
Advantages
Lower Interest Rates: Home loans generally have lower interest rates compared to personal loans because they are secured loans, with the property serving as collateral.
Longer Tenure: Home loans typically offer longer repayment periods, often extending up to 20-30 years. This results in lower monthly EMIs, making them more affordable.
Tax Benefits: Home loans offer tax benefits under Section 80C and Section 24(b) of the Income Tax Act. You can claim deductions on both principal repayment and interest paid, which reduces your taxable income.
Disadvantages
Property as Collateral: Since the home loan is secured against the property, failure to repay can result in the lender seizing the property.
Processing Time and Costs: Home loans involve a more extensive approval process, including property valuation and legal checks, leading to higher processing fees and longer approval times.
Characteristics of Personal Loans
Advantages
Quick Approval: Personal loans are typically processed faster than home loans, with minimal documentation and no need for property valuation.
Flexibility: Personal loans can be used for various purposes, not restricted to home-related expenses.
Disadvantages
Higher Interest Rates: Personal loans usually have higher interest rates compared to home loans because they are unsecured loans.
Shorter Tenure: The repayment period for personal loans is shorter, often ranging from 1 to 5 years, leading to higher monthly EMIs.
Evaluating the Combined Loan Option
Your banker’s suggestion to split the loan amount into ?20 lakhs for a personal loan and ?30 lakhs for a home loan can be assessed by considering the following factors:

Interest Rates
Compare the combined interest rate of both loans with the interest rate of a single home loan.
Personal loans have higher interest rates, which can increase your overall interest cost even if the rate seems attractive in isolation.
Repayment Tenure
The home loan’s longer tenure will lower monthly EMIs, but the personal loan’s shorter tenure will increase monthly payments.
Consider your monthly cash flow and financial stability to manage both EMIs comfortably.
Tax Benefits
A home loan provides tax benefits that a personal loan does not. By opting for a higher home loan amount, you can maximize these benefits.
Financial Goals and Priorities
Assess your immediate financial needs. If you need funds quickly and for purposes other than purchasing a home, the personal loan might be beneficial.
For long-term financial planning, a larger home loan can be more cost-effective due to lower interest rates and tax benefits.
Alternative Solution: Larger Home Loan
Increasing Home Loan Amount
Instead of splitting the loan, consider taking a larger home loan, if possible. This approach takes advantage of the lower interest rates and tax benefits associated with home loans.
Use the additional home loan amount for any other financial needs you might have, ensuring you stay within your budget and repayment capacity.
Scenario Analysis
Example Comparison
If the personal loan interest rate is slightly lower than typical personal loan rates but higher than the home loan rate, calculate the total interest cost for both loans combined.
Compare this total cost with the interest cost of a single, larger home loan over the same period.
Conclusion
While the combined loan option might seem attractive due to the quick availability of funds from a personal loan, it’s generally more cost-effective to opt for a single, larger home loan if your primary purpose is purchasing a house. This allows you to benefit from lower interest rates and tax deductions.

Before making a final decision, carefully evaluate your monthly cash flow, long-term financial goals, and consult with a Certified Financial Planner to ensure the chosen loan structure aligns with your overall financial plan.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in