There are many advantages to using personal home improvement loan, because upgrading units require cash payments-sometimes upfront payments-not every property owner can afford it. But there are some drawbacks to using these loans, because the interest must be repaid later.
Therefore, if you want to apply for a personal loan and plan to use it for home renovation, we will help you understand whether it is a good choice by discussing the pros and cons of using a private loan for home renovation.
The pros and cons of using personal loans for home improvement loan in Pakistan
Certain changes and repairs in your home require immediate attention. In this case, personal housing renovation loans are always a good choice. For example, a person can’t wait to save money to repair a leaking roof. You must fix it as soon as possible. However, because the project is urgent, please weigh the pros and cons of using personal loans for housing renovation before making a final decision.
Advantages of using personal loans for house improvement:
- Lower interest rates
- Fast financing
- No margin
- Various purposes
Disadvantages of using personal home improvement loans:
- Handling fee
- Low return on investment (ROI)
- Fixed payment
Advantages of using personal home improvement loans
Here are some of the biggest benefits of using personal housing upgrade loans:
Lower interest rates
Personal loans usually have low interest rates!
Compared with credit cards, personal loans usually have lower interest rates. On average, Pakistani banks provide personal loans ranging from PKR 30,000 to PKR 200,000, with a repayment period of 1 to 5 years. Interest rates vary, but any well-known bank in the country will charge at least 16% of the total loan amount. You may be as high as 32%, depending on the amount you borrowed.
Applying for a housing loan is quick and easy, and the approval process is not that long. In most cases, the applicant can complete the entire process in a few hours or a day. Most banks in Pakistan also provide online services from which basic financial and personal information of the borrower is collected. At the same time, the application process is not troublesome at all. Approval will be obtained within a week or two, and you will receive your payment immediately.
There is no guarantee for personal loans!
When you hear that most personal loans are not secured, don’t worry. Fundamentally, this means that the borrower does not have to take risks to secure assets. If you fail to pay off the loan within the stipulated period, you don’t need to worry about the lender taking over your property. Unlike mortgages, auto loans, and home loans, personal loans don’t even require advance payments. It can be said with certainty that using a personal home improvement loan is the safest option, and there is almost no risk in terms of mortgage.
One of the biggest advantages of considering a personal loan is that it can be used for any purpose. Compared with other more restrictive types of loans (such as mortgages, auto loans, or student loans), personal loans have a specific purpose. They can basically be used to repair leaks, change paint properties or redesign (basically anything you want).
Disadvantages of using personal housing renovation loans
As mentioned earlier, personal loans can be used for house upgrades, but this approach also has some disadvantages. Let’s see:
Due to the increased interest, the cost you paid exceeds the actual cost!
Although lower interest rates are one of the benefits of personal loans, you will have to pay extra interest. Suppose your house upgrade cost is added to 100,000 Pakistani rupees. You took out a personal loan and signed it to repay it within one year. The monthly instalment you have to pay on average is 10,000 PKR, which is equivalent to 120,000 PKR per year. Therefore, it goes without saying that the cost you paid is more than the actual cost of the upgrade.
Obtaining a personal loan is one of the fastest ways to raise funds for your house renovation project, but remember that some banks also charge a handling fee (also called a construction fee) in addition to paying interest. Generally, the amount charged by banks in Pakistan is about 1% of the personal loan processing fee. Some even provide for a fixed value of at least 2500 Pakistani rupees, depending on the higher amount. When a borrower obtains such a loan from a bank, it must pay all handling fees in advance.
Lower return on investment (ROI)
Personal loans will affect your return on investment!
People intend to sell their houses as soon as possible to transform their houses, and they should not be expected to invest the same amount of money in improving their houses. This means that if you pay 120,000 Pakistani rupees for house renovation, you will only get back a part of the actual value of the upgrade, especially considering how to pay back the interest (as described above). This is why if you cannot pay interest and seek a higher return on investment, using your own money is usually a better idea.
When you accept small debts through credit cards or the like, it may take a long time for you to be flexible enough to pay off those debts. However, personal loans have fixed payments that are paid within a specified period. If the borrower defaults on these payments, the lender has the right to sue the borrower for breach of contract.
Therefore, these are some of the biggest pros and cons of using personal home improvement loans. These will help you make an informed decision. If you have ever used a personal home improvement loan on firstname.lastname@example.org, please let us know and share your experience.