Can You Use Personal Loan as Down Payment For House?

Buying a house or investing in a property is a very important decision and can be a life-changing event which is why a lot of planning and preparation goes into it. When you are buying a house, you pay a down payment which is usually 20% of the total cost of the property. This 20% down payment should be invested by the buyer from his/her own wallet and the rest 80% can be availed as a home loan from banks or NBFCs.But a lot of buyers struggle to arrange for the home loan down payment and if the property is expensive, the down payment is also high. In case the buyer doesn't have enough funds to meet the 20% of the property cost, he/she can turn to a personal loan. While it may not be the best option, it can still be availed in the time of an emergency.Unless you've exhausted all your options, it is not recommended to take a personal loan out to make a home loan down payment since mortgage lenders most of the times don't allow it. A personal loan defeats the purpose of the down payment as it signifies your contribution or investment in the property.Also, personal loans have a shorter term when compared to a mortgage/home loan which results in monthly instalments being higher. The rate of interest charged on personal loans is also significantly higher and can fall anywhere between 10-30%.If you are buying a house you are supposed to disclose the source of your down payment and if your mortgage lender approves taking a personal loan for it, you can avail one. Explore all your options and try to look for a lower interest rate considering you'll have to repay the personal loan along with the mortgage loan.

Usually, the rate of interest on a personal loan can be anywhere between 10 and 30%. However, if you have a good credit score you can get it at a lower rate of interest as well. Two things to keep in mind are - a good credit score and a stable monthly income. If you have a credit score of 750+ you automatically qualify for a personal loan with a less interest rate. Additionally, you have to ensure that you have regular monthly income coming in which will be a factor determining your stability.In all, we recommend that you use your own savings to make the home loan down payment and go for a personal loan only if necessary.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.