Taking a personal loan for home renovation? Here’s how it pays off

When someone is in financial distress, they can rely on an advance or borrowing, typically known as a personal loan in banking parlance. It is one of the most commonly known advances that borrowers can take to meet their urgent financial needs.

A personal loan is an unsecured loan, and its proceeds are transferred straight away to the bank account of consumers who are given a free rein on how to use it. One may use the proceeds of the loan for investing in a business, for an emergency, to buy a luxury item, or even to go on a vacation. Among all these purposes, one task for which it is ‘appropriate’ to borrow is to spend on house renovation.

Meanwhile, it is vital to know that one should take a home loan to buy a property. But when you want to get some renovations done and the proceeds of the home loan fall short, you can rely on a personal loan for the same. These are the reasons why a personal loan for home renovation makes a lot of sense.

Personal loan for home renovation

I. Investment over consumption: Investing in a property gives better returns than merely spending the money. Instead of spending on consumption such as travel or a luxury, spending on house renovation is far better in terms of long-term returns.

II. Price of property: When you invest a certain amount of money in a property, the appreciation in the property price is generally disproportionately higher. This means you may invest only ₹10 lakh, but the total increase in property could be more. By this rationale, investing in a fixed asset reaps big dividends.

III. Tax benefits: To put it simply, personal loans themselves do not offer tax benefits. Still, using them for home renovation can indirectly qualify you for deductions under Section 24(b) of the Income Tax Act if linked to property improvement. This effectively reduces the net borrowing cost, adding another layer of return beyond capital appreciation. For complete clarity on the same, discuss the benefits with a certified tax planner before moving ahead with any such loan.

IV. Fixed interest: Most personal loans have fixed interest rates, which means predictable monthly payments. This can help you manage your budget better than using other loans that charge a floating rate of interest.

V. Complete discretion: Banks usually do not ask for detailed spending breakdowns, so you can use the loan for everything from structural changes and interior design to buying furniture or appliances.

To conclude, an individual's credit score also plays an important role in helping to manage credit profiles efficiently. This is a three-digit number provided by leading credit bureaus in the country, such as CIBIL, CRIF High Mark, Equifax and Experian.

The focus should also be on not only borrowing but repaying the loans in a planned manner. Ensure that you devise a plan to repay EMIs on time to ensure that your credit score remains high and the credit utilisation ratio remains low.

Furthermore, any borrowing should only be done after proper consultation with a certified financial advisor, after understanding the pros and cons of taking a personal loan for home renovations.

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