Personal loan: Should you club it with another borrowing? These are the 4 key advantages | Mint

When you are planning to raise a personal loan, and are worried over its high interest rate, you can follow a simple strategy. You can blend it with another loan for a range of benefits such as low interest rate and easier eligibility, among others.

Let us understand how it works. Suppose you need ₹10 lakh personal loan for home renovation then you can use ₹6 lakh as home loan and the remaining ₹4 lakh as personal loan. Alternatively, if you have a current loan of ₹7 lakh and now need another ₹3 lakh – then you can take a top up loan on the current loan instead of applying for a fresh personal loan.

Here we describe the key advantages of clubbing multiple loans into one:

These are the key advantages

1. Lower interest rate: Home loans have lower interest rates, while personal loans have higher rates (11 to 24 per cent). Some banks allow you to take a top-up loan on a home loan instead of a personal loan, which can reduce the overall interest burden.

2. Higher loan eligibility: If your income isn’t sufficient for a large personal loan, you can blend it with another secured loan (such as a home loan) to increase eligibility. Some banks allow co-applicants (spouse/parents) to increase the total sanctioned amount.

3. Easier repayment: Some banks allow loan consolidation, where multiple loans are integrated into one with a single instalment, thus making the repayment easier. If you have an existing loan with a good repayment history, lenders may offer better terms for additional loans.

4. Tax benefits: Personal loans do not offer any tax benefits, but when you raise a home loan or education loan, it will offer deductions. 

And if you have used a personal loan for renovating your home, you may claim tax deductions on interest under some conditions.

When should you avoid mixing loans?

If the personal loan’s interest rate is exorbitant (such as around 18-20 percent) as compared to the current loan. And if you already have a high loan burden, then mixing it with another loan can raise financial stress.

If clubbing leads to longer repayment tenure without real cost savings.

(Note: Raising a loan comes with its own risks. So, due caution is advised)