Will personal loan affect Home Loan?

Personal loans can affect your application for mortgages and, depending on the situation, may be good or bad.

If you plan to purchase a home in the next few years, applying to a personal loan can potentially reduce how much you can buy for a home and can affect your credit, depending on how you manage your debt. Before you apply, this is what you need to know.

Could my mortgage application have an effect on a personal loan?

Any debt that you have listed on your credit report will impact your ability to obtain a mortgage loan. With personal loans there are two key things borrowers can look for: how you handle the debt and how it impacts your debt-to – income ratio.

Here are some ways that a personal loan can have a positive impact on your mortgage application

Discipline financial

The creditor shall regard you as a financially disciplined person if you have good repayment records of your loan, i.e. no EMI defaults and timely repayments. It shows your seriousness as a borrower and shows that your money would be safe.

History of credit

Repaying EMIs for personal loans will positively reflect your credit score and create a good credit history. Financial institutions tend to offer home lending to borrowers with an active and positive lending history.

Force of negotiation

You are more able to bargain with the borrowers because you have a clear record of repayment with several loans and loan items. Moreover, since you have a good credit rating, you can have a lower interest rate on the home loan and a longer repayment tenor.

Consolidation of debt

You can use the money you have borrowed to consolidate your bills for credit cards and other high-interest loans. This will give your credit score an amazing drive.

Your monthly profits

Although your monthly income is an important factor in all kinds of loans, security or collateral is often supported for secured loans such as home loans, car loans or gold loans, which do not include a personal lending. The lender needs to ensure that you have ample monthly earnings to pay back the loan on time. Revenue criteria often differ depending on region. In Mumbai , Delhi and Bengaluru, the cost of living in these cities is generally higher.

Your credit ranking

A credit score is a three-digit credit history number. In other words , it allows the lender to understand how carefully you have used credit such as loans and credit cards. For example , in India, most borrowers depend on the CIBIL score, which ranges from 300 to 900. The higher the score, the better the chances of a personal loan being accepted.

Lenders usually prefer applicants with a CIBIL score of 700 and higher. If your CIBIL score is less than 700, you should first seek to increase your credit score prior to applying for the loan to meet the lender’s eligibility for the personal loan.


Your age allows the lender to ensure that you have many years left. In most cases, borrowers favor working applicants aged 23 to 58 years of age.

The qualifying age limit for self-employed professionals and non-professionals is between 28 and 65 years. As people in this category are self-employed, they can continue to work even when they are 55-58 years of age. The upper age limit is therefore up to 65 years.

Your experience at work

Applicants with more job experience are usually seen as having a financially more stable future than anyone who has started working recently. Depending on the lender you choose, your job and other factors, your minimum experience may vary. A look at the table below will however help you to understand what most banks regard as favorable when applying for a loan.

When personal loans impact your application for a home loan negatively

With personal loans, things get out of hand very easily. In some circumstances, a personal loan will adversely impact your mortgage application, such as:

Low loan score

If you have several personal loan accounts, but can not pay EMIs regularly or fail to pay on any of these EMIs, the credit score is adversely affected. It takes several months to recover and may jeopardize your application for your home loan.

Debt to sales ratio

A personal loan will directly affect your debt-to-revenue ratio. This is a significant financial ratio that lets the lender assess the portion of your income for EMI payments. If the debt to income ratio reaches 30%, the chances of authorizing home loans are that.

Exposure to loans of high interest

If one or several personal loans have been made available at high interest rates, this exposes your dependence on credit. This could put doubts in the minds of the lenders.

Increased interest rates

If you have taken advantage of several personal loans and fail to meet repayments, a home loan may still be given. But the interest rates offered to you for home loans will be much higher.

Difficult queries

Whenever you apply for a loan, the lender will launch a difficult query to the credit office. Such challenging questions are reported in your credit report. Too many tough questions for the borrowers will raise a red flag.


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