A personal loan can help you pay for big expenses, like fixing your home or buying new appliances. These loans usually have lower interest rates than credit cards, and you can pay back the money in easy monthly instalments over a few years.
However, it’s essential to research and compare loan terms to find the best option for your situation. Carefully consider what you can afford in terms of monthly payments before borrowing.
Things to Remember While Availing a Personal Loan for Home Appliances
Below are some of the factors you should take care of before applying for a personal loan for home upgrades:
1. Types of Personal Loans
There are three major types of loan options for upgrading homes available in India. Unsecured personal loans are based only on the applicant’s creditworthiness, income, and ability to repay. They do not require any collateral, but generally have higher interest rates to account for the increased risk.
Secured personal loans use an asset like a house, car, bonds or FDs as collateral, which allows you to qualify for larger loan amounts and typically at lower interest rates.
Peer-to-peer lending platforms connect individual investors looking to lend money directly with creditworthy applicants. Interest rates on peer-to-peer loans range between those of financial institutions and credit cards.
2. Using for Appliance Purchases
Taking out a personal loan for home upgrades can help finance replacing major household appliances like refrigerators, washing machines, air conditioners, and laptops. Start by estimating your expected costs for all appliance purchases over the next 3-5 years.
Carefully measure existing appliances and research newer energy-efficient models that may better suit your needs. Check government websites for any rebates or incentives offered for purchasing ENERGY STAR-certified appliances, which could help significantly offset upfront costs.
With total cost estimates completed, research and compare personal loan interest rates and terms from major financial institutions, along with peer-to-peer lending platforms.
Make sure to select a loan repayment tenure that aligns with the typical lifespan of major appliances, between 5 and 10 years. This helps ensure loan payments are completed while the appliances are still in working condition.
3. Financing Home Renovations
Loans for appliance purchases allow homeowners to finance major property upgrades like finishing a basement, renovating the kitchen and bathrooms, constructing an addition, or installing a swimming pool. Meet with contractors to get detailed quotes and understand the full scope of work for larger home renovation projects.
It is always wise to build in contingencies of 10-20% on top of quoted costs, as unexpected expenses frequently arise during construction. For costly renovations requiring total loan amounts above ₹15-20 lakh, explore the possibility of securing the loan against your property.
This allows you to utilise your home equity through instruments like a home equity loan, home equity line of credit, or a loan against property. These types of secured loans can provide substantially lower interest rates by using the value of your home as collateral.
4. Getting Approved
There are some best practices that can improve your chances of getting approved for a home renovation personal loans with better terms. To begin with, check your credit report from agencies like CIBIL for any errors or discrepancies that could negatively impact your score.
Maintain low credit utilisation ratios below 30% by repaying existing debts before applying for a new loan. Prepare to clearly explain the purpose of your loan and detailed plans for repayment based on your income, other obligations, and household budget.
If your credit score or income is marginal and unlikely to qualify on your own, consider asking a family member or friend with excellent credit to co-sign the personal loan with you.
5. Loan Offers Comparisons
Make sure you obtain personalised loan quotes from 3-4 major banks or non-banking financial companies (NBFCs), and peer-to-peer platforms; i.e. do your homework and then compare both reducing balance and fixed rate loans in terms of such things as which has the lower total cost for the entire repayment period.
Be sure you understand precisely what fees will be charged for processing, prepayment, foreclosure, or missed payments. Combine all these total costs over the entire loan period, also including any relevant interest rates and any fees.
Ensure you review the complete loan repayment schedule and confirm that the monthly Equated Monthly Installment (EMIs) are manageable and fit within your monthly household budget. Loans with EMIs exceeding 30-40% of your net after-tax income should be avoided.
6. Repayment Management
After your loan is approved, make a repayment diligence calendar with details of the monthly due dates well in advance. Make payment reminders to ensure that you never miss an EMI payment, because doing this would be a detriment to your credit rating.
Even better, if you can budget some additional money every month to pay over the minimum EMI, to be repaid in full much long before your schedule requires it, which will potentially save you cash from total paid interest.
Upgrade Appliances With Personal Loans
Taking a personal loan can be a good way to finance upgrading major home appliances without utilising all your savings. However, you will need to qualify for approval. Follow these tips:
- Boost Credit Score: Loan providers check credit scores to estimate your repayment risk. Scores above 700 mean better loan terms. Pay all bills on time and reduce card balances before applying.
- Document Steady Income: Proof of substantial monthly income makes approval more likely. Have recent salary slips showing consistent salary deposits ready.
- Research Interest Rates: Compare interest rates and fees from multiple lenders. Choose the most competitive loan terms so the borrowing cost stays low. Avoid very high rates.
- Limit Total Debts: Don’t apply if you already have large debts from other loans or cards. Too many obligations can signal repayment risk. Try paying off some debts first.
- Borrow Only What You Need: Don’t take excessive loan amounts just because higher values get approved. Borrow only enough for the actual appliances needed.
- Choose Shorter Tenure: Opt for 12-36 month loans even if longer terms have lower EMIs. Shorter tenure means paying less total interest.
- Leverage Relationships: Banks or NBFCs may offer better rates to existing account holders. You may also get relationship bonuses for high balances.
- Prepare Paperwork: Have the required documents such as ID proof, residence proof and income statements ready to make the application process faster.
Conclusion
While personal loans allow you to finance major household expenses, make sure to consider repayment terms and your budget before borrowing carefully. Getting quotes from multiple lenders, checking your credit, and calculating total costs can help you find an affordable option. Financing large appliance purchases or home upgrades with a personal loan from Shriram Finance can be reasonable if done carefully.
