Planning to give a fresh upgrade to your living space this year? Whether you wish to get some serious remodelling done or just some minor home improvements, securing the right financing is the first step. The right type of financing ensures that you are making a wise investment in your property as well as your future comfort. The two most common options that homeowners hear a lot about are renovation loans and personal loans. The former only helps finance home improvement projects with secured rates, while the latter offers flexible funding that can be used for various purposes, including renovations.
Perhaps both loans can provide the necessary funds at competitive interest rates and repayment terms, but which one actually prevails in the renovation loan vs. personal loan battle? This blog will highlight the essential factors to consider when comparing renovation loans and personal loans to help you make the right decision financially.
What is a Renovation Loan?
A renovation loan is a type of loan that is specifically used to renovate, modify, or reconstruct your home. You can easily convert your existing house into your dream house, customized according to your choices and aesthetics. While a home loan allows you to purchase a home, a home renovation loan helps you in financing the improvement of the home you already own. Some of the key features of a home renovation loan are:
a. Your loan can be used to fund any sort of home repair such as flooring, extension, painting, or renovation. But, it can not be used for the purchase of furniture or movable home interiors.
b. If your home is jointly owned, then all of the owners must apply for the home renovation loan.
c. Other members of the family can also become joint applicants for the loan, even if they are not the joint owners of the house.
d. The tenure of the loan is decided on the basis of factors like:
- Your age at the maturity of the loan
- Age of your property (house)
- Your income source
e. The interest rates are also derived on the basis of your credit score and they are generally floating over the tenure of the loan.
What is a Personal Loan?
The personal loan offered by StashFin is an unsecured loan regulated by the RBI, but has more relaxed norms. It doesn’t require any collateral to get a personal loan; you may use the funds without any end-usage restrictions. The following are the key features of a personal loan:
- Without collateral
- Easy availability (generally within minutes of application)
- Minimal documentation required
- You get competitive interest rates tailored to individual circumstances and based on individual credit history.
- No hidden fees for early loan repayment.
Key Differences Between Renovation Loans and Personal Loans
With each option having its own set of advantages and drawbacks, finding the best one among the two becomes challenging. While both renovation loans and personal loans facilitate the necessary funds at the time of need, understanding key differences in their structure and process helps you make an informed decision. The following factors are the key differentiators:
1. Loan Usage:
A personal loan is a lump sum deposited into your account within minutes of the application, and then no questions asked. You get complete freedom to use that money as per your requirement. Whether it is a renovation expense or any other debt consolidation, medical expense, or travel expense, you can use these funds for unforeseen costs during your renovation or other personal needs.
However, a renovation loan can be used particularly for home improvement projects. The lenders require details of the renovation plan and budget, and they disburse money in stages as the project progresses.
2. Nature of Loan:
Mostly, personal loans are unsecured loans. This means that you do not have to put up any assets as collateral against the loan. The loan is approved on the basis of your credit score, source of income, and banking history. This method reduces your risk of losing an asset, but it might also mean higher interest rates if your credit score is not good.
In the case of renovation loans, they are secured. Your home, for which the renovation loan is applied, itself acts as collateral. So, for example, if you fail to repay the loan, the lender has the right to repossess the property to recover their funds.
3. Interest Rates:
Since personal loans are unsecured, lenders charge higher interest rates as compared to renovation loans, which are secured with collateral. However, these rates can be fixed or floating, and the rate of interest can be reduced on the basis of your credit score.
4. Tax Benefits:
The interest paid on a renovation loan is tax-deductible, i.e., you may get tax benefits on the interest amount paid for this type of loan. However, personal loans are not tax-deductible. They are unsecured and come with no hidden fees like early foreclosure charges.
5. Repayment tenure and loan amount:
Since renovation loans offer lower interest rates, they typically come with longer repayment tenures. This implies that lower EMIs over a span of 10–15 years, which means you pay interest for a longer period. Personal loans are generally smaller in amount (up to 5 lakhs) and are primarily devised considering your income and credit score, rather than the value of any asset. Thus, although they come with slightly higher interest payouts, they also provide the flexibility of closing the loan early if possible. They also result in less total interest paid over the life of the loan, allowing you to become debt-free faster.
6. Loan approval & disbursement:
Personal loans, especially with Stashfin, can be disbursed as quickly as possible with the convenience of applying online. Simply submit a few important documents and apply for the loan. Our team comes back with possible proposals on the basis of your eligibility.
In the case of renovation loans, the approval and application process is a bit lengthier. It often requires property appraisals, detailed plans, budget estimates, and detailed underwriting. Disbursement of this loan type is also a time-consuming process, with funds released in stages as project milestones are achieved.
Pros and Cons of Personal Loans VS Renovation Loan
For Personal Loans:
| Pros | Cons |
| No need to pledge any assets like property or gold for a loan. Easy to obtain. | Since they are unsecured loans, higher interest rates are charged compared to other secured loans. |
| The loan is disbursed in one shot and can be used for any personal expense, from medical emergencies to travel bills- no end-use restrictions. | Missed or delayed monthly payments might damage the credit score, making future borrowing difficult and expensive. |
| The approval and fund transfer process is seamless and quick, within minutes. They are ideal for urgent financial needs. | The ease of access might make individuals borrow more than they can repay. Risks must be calculated in advance. |
| Quick loan application process that requires only basic documents like ID, address proof, and income proof. | Once the lump sum of one loan is disbursed, you can not draw additional funds on the same loan account without reapplying for a new loan. |
| Predictable EMIs make it easy to plan your monthly finances. | EMI is a fixed expense, which can not be changed. |
| It offers debt consolidation to pay off multiple high-interest debts with a single personal loan. It streamlines repayments into a single, potentially lower EMI. | |
| Timely repayments reflect responsible financial behavior and enhance your credit score. | |
| Borrowers can choose to repay early without any foreclosure charges or hidden fees. | |
| Eligibility criteria is much less stringent than for secured loans. |
For Renovation Loans:
| Pros | Cons |
| Renovation loans are secured loans, thus, they generally come with much more competitive interest rates. | Since this type of loan is secured, you have to pledge some asset as collateral. This makes loan default or foreclosure risky. |
| The interest paid on a renovation loan is often eligible for tax deductions under Section 24 of the Income Tax Act, which can reduce the overall cost of borrowing. | Once the loan is issued, it can only be used for home improvement activities and for no personal usage. |
| Renovation loans come with longer repayment periods, thus helping with lower and manageable EMIs. | The application process involves extensive paperwork, a lengthy process of property valuation, and legal checks, leading to a longer approval time. |
| If the renovation loan is utilized to enhance your property’s value positioning, then selling the renovated property offers good returns. | Sometimes investing too much on the renovation might not increase your property’s value as much. This leaves you with greater expenses than returns. |
| These loans are specifically issued for home projects, making it easier to plan and execute renovations without exhausting personal savings. | A lot of processing fees and other charges add to the total cost. |
| Failure to make timely repayments can negatively impact your credit score, hindering future credit applications. | |
| If you are planning for very small but necessary fixes or non-structural changes, the renovation loan might be a tough process as compared to other unsecured loans. |
Eligibility for Maximum Loan Amounts: Personal vs Renovation Loans
Maximum loan amount refers to the amount of money that you can borrow as a personal loan or as a renovation loan. Since we know renovation loans are secured loans and you put your valuables as security for this loan, and personal loans are mostly unsecured, there are differences in maximum loan amounts.
Personal loans are issued based on your credit score and ability to repay the debt. However, the renovation loans are disbursed based on your ability to repay and the value of your home. It is because of this that the renovation loans come with the larger maximum loan amount.
| Personal Loan | Renovation Loan | |
| Maximum Loan Amount | Typically up to ₹5 Lakh. | It can range between ₹5 Lakh to over ₹1 Crore (depending on the valuation of the property). |
| Eligibility Checks | Your monthly income, existing loans, and credit history. | The valuation of your home, the renovation plan from a contractor, and your income. |
Which Loan Option is Better for Renovating Your Home in 2025?
Renovating your home already involves a lot of homework; financing must definitely not add to up! Personal loans are the best option in that case. Unlike renovation loans, personal loans do not require you to stake any valuable asset. Additionally, the loan comes with unmatched flexibility in terms of early repayment and a swift loan approval process.
In case of urgent repairs, a personal loan can easily be put to use as per your need. You will have more freedom to use your funds on furniture or interiors as well, which renovation loans typically restrict.
How to Choose Between a Renovation Loan and a Personal Loan?
So, if you have a good credit score and a strong repayment plan, then nothing matches the speed and financial freedom that come with personal loans.
Conclusion
Now you can answer the question “Which one is better, a home renovation loan vs a personal loan?” for yourself. It is a big decision, but it should not be taken without analyzing your financial stability. Firstly, consider why you need the loan and how much you require to borrow. Then, compare offers from different lenders. Lastly, speak with an expert at Stashfin who can help you understand the entire agreement and its terms and conditions before you sign the final document.
Frequently Asked Questions
Can I Use a Personal Loan for Home Renovation?
Yes, you can use a personal loan for home renovation, emergency medical bills payments, planning unexpected travel expenses or in other miscellaneous situations. If you know how to manage your debt, you must apply for instant personal loans.
What Is the Typical Loan Amount for a Renovation Loan?
The typical loan amount for a renovation loan is derived on the basis of the borrower’s credit history and the equity in their home. Although renovation loans cover almost all the major renovation costs, up to 90% of the property’s value, loan amounts may range from ₹30,000 to ₹5 lakhs.
Can I Apply for a Renovation Loan Without a Mortgage?
Yes, you can get a loan for home renovation without having to pledge your property as collateral. StashFin offers unsecured personal loans specifically for home renovations. These loans may come with higher interest rates compared to a mortgage, but they offer the flexibility of early repayment.
Are Renovation Loans Only for Major Renovations?
No, renovation loans can be used for a wide range of home improvement tasks like minor repairs or interior changes. Renovation loans are designed to finance all sorts of improvements, repairs, or upgrades to an existing home.
Can I Prepay a Renovation Loan or Personal Loan Without Penalty?
There are usually no charges for foreclosing your loan early in case of personal loans with Stashfin. However, renovation loans often have a prepayment penalty if you refinance or transfer your loan to foreclose it.