A home renovation loan, also called a home improvement loan, is a type of housing loan that people can borrow for home improvement purposes. If you want to fix, improve, or upgrade your home, you can apply for a home improvement loan. Most banks, non-banking financial companies (NBFCs), and housing finance companies (HFCs) give this type of loan. Sometimes it is part of a regular home loan, and other times it is a separate loan in the larger category of home loans.
Home Renovation Loan Interest Rates, Processing Fees, and Prepayment Rules
Home improvement or renovation loans come with floating interest rates. This means the rates can go up and down. The interest rate for a home renovation loan depends on many factors. These factors include the applicant’s monthly income, credit score, how much money they want to borrow, what kind of job they have, and their business background. Usually, the interest rates for home renovation loans are the same or just a little higher than the interest rates for normal home loans.
The processing fees for home renovation loans usually fall between 0.25% and 2.00% of the total amount you borrow. The Reserve Bank of India (RBI) has made strict rules to stop lenders from taking prepayment charges on loans with floating interest rates. But lenders still have the choice to charge prepayment fees on fixed interest rate loans, or they can decide not to charge any fee at all and fully cancel it.
Please refer to the following chart to know the interest rates for home improvement loans by different lenders in India.
| Lender | Loans Up to Rs. 30 Lakh | Loans Above Rs. 30 Lakh to Rs. 75 Lakh | Loans Above Rs. 75 Lakh |
| Axis Bank | 8.75%-12.80% p.a. | 8.75%-12.80% p.a. | 8.75%-9.65% p.a. |
| Aditya Birla Capital | 8.60% onwards | 8.60% onwards | 8.60% onwards |
| Bank of Baroda | 8.00% – 9.65% p.a. | 8.00% – 9.65% p.a. | 8.00% – 9.90% p.a. |
| Bajaj Housing Finance | 7.99%-17.00% | 7.99%-17.00% | 7.99%-17.00% |
| Canara Bank | 8.00% – 10.75% p.a. | 7.95% – 10.75% p.a. | 7.90% – 10.65% p.a. |
| Federal Bank | 8.55% p.a. onwards | 8.55% p.a. onwards | 8.55% p.a. onwards |
| Godrej Housing Finance | 8.55% onwards | 8.55% onwards | 8.55% onwards |
| HDFC Bank Limited | 8.45% p.a. onwards | 8.45% p.a. onwards | 8.45% p.a. onwards |
| ICICI Bank | 8.75% p.a. onwards | 8.75% p.a. onwards | 8.75% p.a. onwards |
| IDFC FIRST Bank | 8.85% p.a. onwards | 8.85% p.a. onwards | 8.85% p.a. onwards |
| IDBI Bank | 8.40% p.a. onwards | 8.40% p.a. onwards | 8.40% p.a. onwards |
| Kotak Mahindra Bank | 8.65% p.a. onwards | 8.65% p.a. onwards | 8.65% p.a. onwards |
| LIC Housing Finance | 8.00% p.a. onwards | 8.00% p.a. onwards | 8.00% p.a. onwards |
| L&T Finance Limited | 8.65% p.a. onwards | 8.65% p.a. onwards | 8.65% p.a. onwards |
| Punjab National Bank | 8.05% – 9.85% p.a. | 8.00% – 9.75% p.a. | 8.00% – 9.75% p.a. |
| Punjab & Sind Bank | 8.05% – 11.25% p.a. | 8.05% – 11.25% p.a. | 8.05% – 11.25% p.a. |
| PNB Housing Finance | 8.50% – 14.50% p.a. | 8.50% – 14.50% p.a. | 8.50%-11.45% p.a. |
| Piramal Capital Housing Finance | 9.50% onwards | 9.50% onwards | 9.50% onwards |
| RBL Bank | 9.00% p.a. onwards | 9.00% p.a. onwards | 9.00% p.a. onwards |
| SBI (State Bank of India) | 8.00%-9.20% p.a. | 8.00%-9.20% p.a. | 8.00%-9.20% p.a. |
| Sammaan Capital (Indiabulls Housing Finance) | 8.75% onwards | 8.75% onwards | 8.75% onwards |
| Tata Capital Housing Finance | 8.75% p.a. onwards | 8.75% p.a. onwards | 8.75% p.a. onwards |
Documents Needed for a Home Renovation Loan
The documents you need for a home renovation loan are almost the same as the ones needed for a normal home loan. Below are some of the main papers you have to provide when you apply for a home renovation loan:
- A properly filled application form
- Proof of your age
- Proof of your income
- Proof that you have a job or run a business
- Proof of where you live
- Papers related to the property
- An estimated cost sheet for the repair work
Note: This is not the full list. You might be asked to give more documents depending on your profile and what the bank or finance company wants.
Eligibility Criteria: Who Can Get a Home Improvement Loan
To apply for a home improvement loan, there are certain criteria you need to meet:
- People who live in India can apply for a home improvement loan. Some lenders also give these loans to NRIs (Non-Resident Indians).
- Most lenders give home renovation loans to people who are 18 years or older. But they usually want the loan to be fully paid off before the person turns 70.
- People who have a job and those who run their own business can both apply for this loan.
- You can increase your chances of getting the loan by adding a co-borrower (someone who applies with you), choosing a longer time to pay back the loan, or showing another source of income.
- If your credit score is 750 or more, you have a better chance of getting the loan. People with high credit scores may also get the loan at a lower interest rate.
Some banks or loan companies may also look at other things like how much money you earn, how much you already owe, what property you own, how long you have worked at your job (for salaried people), or how long you have been running your business (for business owners) before they say yes to your loan.
Pros and Cons of Home Improvement Loans
Advantages of Home Improvement Loans
Here is how getting a loan for home improvements can help you:
- Start right away – You do not have to wait to save up money. You can start your project as soon as your builder is ready.
- Quick access to money – If you apply for an unsecured loan, the approval can be fast. Secured loans take a bit longer, but you could still have the money in your account in a few days, or even in 24 hours.
- Easier to plan your budget – A loan with fixed monthly payments helps you manage your money better.
- Choose how long to borrow – You can pick a repayment period anywhere from one year to ten years.
- Decide the loan amount – You can borrow as much as you need, but make sure you can afford the monthly repayments.
- Use the money as you want – Most loans do not require you to say exactly what you will use the money for. If you spend less than expected, you can use the extra money for something else or pay off the loan faster.
- Add space and value – A loan for home improvement can help you add more space to your house, which is great if you have a growing family. It could also increase the value of your property.
Disadvantages of Home Improvement Loans
Here is what to be careful about if you take out a loan for home improvements:
- Penalties – If you do not pay your loan on time, it can hurt your credit score.
- Risk of losing your home – If you secure the loan against your house and miss repayments, the lender can take your house to sell it and recover the money.
- Higher costs – Since you need to pay interest on the money you borrow, the project could end up costing you more than if you just saved up.
- Interest rates – Unsecured loans usually have higher interest rates than secured loans.
- Bad credit? Higher costs – If you have a poor credit history, you might have to pay a higher interest rate.
- Home value may not increase enough – The value of your home might not go up as much as the money you spent on renovations.
What to Consider When Choosing a Home Improvement Loan
Before picking the best home improvement loan for you, think about these things:
- How much you need to borrow – The larger the loan, the more interest you will pay. Only borrow the amount you actually need.
- The interest rate – If the loan has a fixed interest rate, your payments will stay the same until it is paid off. But if it has a variable rate, your payments could change, going up or down.
- How long you borrow for – If you choose a longer loan term, your monthly payments will be lower, but you will end up paying more interest overall. A shorter loan term means you will pay less interest, but your monthly payments will be higher. Make sure you can afford those higher payments before committing.
- Your credit score – If you have a not-so-great credit history, a secured loan could let you borrow more money at a lower interest rate. But keep in mind, if you cannot make the repayments, you risk losing your home.
FAQs on Home Improvement Loans
Q: What is a home improvement loan?
A home improvement is a type of housing loan given by banks, non-banking financial companies (NBFCs), and housing finance companies (HFCs). Homeowners can borrow this fund to fix, improve, and upgrade their homes. This loan is also called home renovation loan.
Q: Can I use a home improvement loan for any type of project?
In general, yes. You can use a home improvement loan for different types of projects, like fixing or upgrading home, or even adding new spaces. However, you should make it clear beforehand. Some lenders might have rules about what the money can be used for.
Q: What types of home improvement loans are available?
There are two main types of home improvement loans:
Unsecured loans: These loans do not need you to use your home as a guarantee. But they usually have higher interest rates.
Secured loans: These loans require you to use your house as collateral. That means if you cannot pay it back, the lender can take your home. These loans tend to have lower interest rates.
Q: How much can I borrow with a home improvement loan?
How much you can borrow depends on your income, credit score, and how much your home is worth. In general, unsecured loans let you borrow less money compared to secured loans.
Q: How long do I have to repay a home improvement loan?
Home improvement loans can last anywhere from 5 to 30 years. If you pick a longer term, your monthly payments will be smaller, but you might pay more interest over time. Shorter loan terms have higher monthly payments, but you will pay less interest in total.
Q: Will my credit score affect my loan approval?
Yes, your credit score is important when applying for a loan. A higher credit score can help you get better loan rates. If your score is low, you might face higher interest rates or even have trouble getting approved.
Q: What are the risks of a home improvement loan?
If you choose a secured loan and cannot pay it back, the lender could take your home. Even with unsecured loans, if you miss payments, it could hurt your credit score, making it harder to borrow money in the future.
