Things to Know Before You Opt for a Home Improvement Loan

About 833 million people, accounting for 69% of India's total population, live in rural areas. Out of this, 75% have a monthly income of less than Rs. 5,000. About 51% of them make their living through annual labour and 70 million do not have access to socio-economic benefits.

According to The Times of India, a vast majority of the population still lives in per capita space of equal to or less than 10x10 feet. This space is not just used for living but also for sleeping, cooking, washing and toilet needs. It comes down to 103 sq feet of space per person in the rural areas and 117 sq feet in the urban parts.

Although cities have slightly better facilities, not even a single city provides 24-hour water supply to its citizens and about 400 million people do not have proper toilets. With an estimation that 7 in 10 people living in cities by 2050, this poses a serious threat and home improvement loans are your best option to ensure that you kids grow up in a healthy environment.

Here are a few things you should consider before opting for such loans.

It is for Improvement and Not Addition

A home improvement loan is sanctioned for repair work that needs to be done and not to buy new items like furniture or kitchen equipment. It can be used to fix a leakage in the pipes, paint the walls, etc. In simple words, it is for the purpose of renovation. Therefore, read all the fine print on the application form thoroughly before signing it.

The Amount of Money to be Borrowed

Usually banks in India pay up to 80% of the total cost of renovation. You can calculate the total expenditure using a home improvement loan calculator. It is easier to acquire if you are already a home loan customer of a bank.

Eligibility Criteria

Just like other types of loans, your monthly income, age and credit history decide the amount that a bank will be ready to lend. If you already have a home loan which is 6-12 months old, you can approach the bank for an improvement loan too.

Benefits over Personal Loan

Unfortunately, a majority of the people in India are not aware of this product and thus opt for a personal loan instead. However, unlike a personal loan, an improvement loan allows you to extend the repayment tenure up to 15 years from 7 years, which means you have to pay a lesser amount as EMI.

Interest Rate and Processing Fee

The interest rate for this product is between 9.5% to 11%, while the processing fee can be anywhere between 0.5% to 1% of the loan amount. It varies from lender to lender.

Tax Exemption

Up to Rs. 30,000 is exempt under Section 24b of the Income Tax Act, but limited to home loan exempt of Rs. 2 lakhs.

There are no prepayment charges for this type of loan and you can choose between fixed and floating rates of interest. So, learn about the amount you need and the EMIs you are likely to pay for it using a home improvement loan calculator and make an informed decision to make your house a better place to live in.