Can You Use a Personal Loan for Real Estate Investments?

Real estate is a fantastic way of adding growth to your wealth. Not that long ago, I heard that almost 90 % of the millionaires who made it through the National Association of Realtors had invested in real estate in one way or another. But I just don’t have cash that readily available. Can one opt for a personal loan in Delhi for this?

Let us look at how personal loans work for real estate investments and whether or not they suit your needs.

What Is a Personal Loan?

A personal loan is an unsecured loan that you may use for just about anything, including home improvements and consolidating other debts. Unlike a mortgage, you don’t have to place collateral for a personal loan, so the flexibility of such loans is very high but risky for the lender.

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Using a Personal Loan for Real Estate: Is It Possible?

Yes, you can use a personal loan for real estate investments! However, you should know some key factors before you decide.

Advantages of Using a Personal Loan to Finance Real Estate

  • Quick Approvals: Personal loans can get approved in a few days or weeks, much faster than traditional mortgages.
  • No Collateral Required: Since it’s an unsecured loan, you don’t have to put your property or other assets at risk.
  • Fixed Rates: Most personal loans have fixed interest rates, which means the monthly installment remains the same.

Example: How Much Can You Borrow?

Suppose you wish to buy a small rental property and require ₹5,00,000 as a partial investment. Suppose you take a personal loan for this amount. Here is how it will work out:

Loan Amount (₹)Interest Rate (%)Loan Term (Months)Monthly EMI (₹)Total Repayment (₹)
5,00,00012%6011,3006,78,000

For instance, the monthly EMI would be ₹11,300 for five years, with the total repayment being ₹6,78,000, including ₹1,78,000 as interest.

Disadvantages of Taking a Personal Loan for Real Estate

Though the personal loan sounds pretty attractive, there are also some disadvantages:

  • Higher Rate of Interest: Generally, personal loans have a higher interest rate than mortgages, and because of this, they could become costlier in the long term.
  • Smaller Loan Amounts: Lenders usually won’t approve large loan amounts for real estate, so a personal loan might not cover the full cost of the property.
  • Shorter Repayment Terms: Personal loans often come with shorter repayment periods (1-5 years), meaning higher monthly payments.

Example: Comparing Personal Loan vs Mortgage for Real Estate

Let’s compare a personal loan with a mortgage to see which is more affordable in the long run:

Loan TypeLoan Amount (₹)Interest Rate (%)Loan Term (Years)Monthly EMI (₹)Total Repayment (₹)
Personal Loan5,00,00012%511,3006,78,000
Mortgage5,00,0008%204,20010,08,000

As you can see, the mortgage offers a much lower monthly payment and a longer repayment period, making it a better choice for many real estate investors. However, a personal loan might be useful if you need quicker funding or don’t have property to offer as collateral.

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When Should You Consider a Personal Loan for Real Estate?

Personal loans might be helpful in the following scenarios:

  • Short-term schemes: It may help flip property fast. Then, this is a case where a short-term personal loan can pay the upfront. You wouldn’t need long-term mortgages for this. 
  • Lower amounts: Some don’t require such a huge sum of money. This can be well suited in real estate deals and other business undertakings in such scenarios.
  • Emergencies: If an investment opportunity arises unexpectedly, a personal loan can get you quick access to cash.

Conclusion

Using a personal loan to invest in real estate may work for some people, but it is not everyone’s cup of tea. Its high interest rates and the payback period might cost slightly more than the typical mortgage. However, with personal loans, for very small or short-term investments, the funding can be acquired speedily without much formality of dealing with collateral. Be sure to weigh your options first.

Frequently Asked Questions

Q. Can I use a personal loan to buy real estate?

Yes, you can even use personal loans for a real estate investment.

Q. Are personal loans better than mortgages for real estate?

Personal loans are faster but more interest-paying.

Q. How much will I be able to lend with a personal loan real estate?

The amount you get depends on your credit and the income, though generally more modest than that from mortgages.

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