Sick of the old style kitchen and wish to have a modern, more spacious and well lit kitchen for yourself. Has your family grown and you need to create additional room. Do you wish to redo the interiors of house since you are wanting to sell it and feel that a better and new look will help in faster selling and even garner better price. Whatever may be the reason for you to plan improvement of loan, the fact is that the costs are going to be steep and you may want to take a loan to be able to meet the same.
What is loan improvement loan?
There is no difference in the name and the product. It is exactly what it has been termed as. The loan proceeds are to be used only for improvement of the structure of the building, internal or external.
If one does not want to use the available funds for renovation, one can apply for this loan and repay it over couple of months or even couple of years.
This is indeed an excellent product. The beauty is that these loans can be applied even with the existing home loans on the properties that need to be redone. All that is required is the equity on existing property. It means that there has to be a difference between the principal outstanding and value of the property. Over a period of time since the prices of the property experience some improvement, the availability of this form of advance to improve the property are available.
How to apply for this loan?
To apply for the home improvement loan, one would need to approach the same housing finance company that had extended the home loan, in case the loan is still running. In the case of no loan, the owner can approach any lending institution.
Akin to any other credit facility, the borrower would need to furnish the KYC documents (know your customer – address proof and the PAN) and income documents to the bank. The bank will also check the current credit profile of the borrower apart from other details to evaluate the application. It would be a good idea to check the CIBIL report before hand and make sure that there are no surprises lined up as the bank’s decision on the application.
Finally, one would also need to submit the estimates of the work from contractors who would be undertaking the improvement work. This helps the bank to determine the loan size and also understand how would the loan proceeds be utilized. While some banks may extend loan higher than the actual requirement also, but, this may be avoided given that the money is not needed and more importantly comes with a cost.
The advantages are many fold.
First, the interest rates are highly competitive in comparison to a personal loan or a credit card that one may be looking as an option to fund the improvement.
Second, a longer term of the loan also brings down the monthly EMI amount.
Third, this form of loan is also eligible for tax benefits which further brings down the cost of loan.
Following are the downsides of this loan.
First, the property will be kept under mortgage and the borrower will not be able to sell it till the time the loan has been fully repaid.
Second, one must keep the fact in mind that the improvement may or may not help in fetching better cost of the property if that was the aim.
Third and more importantly, the renovation may not just get limited to the scope of work that would have been firmed up initially.
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