How Do Personal Loans Affect Mortgage Application?

  • Published on: 5 Apr 2024
How Do Personal Loans Affect Mortgage Application?

Do personal loans affect mortgage applications? This is a smart question and the simple answer is yes. Even though one is unsecured and the other is secured, any existing loan affects your second loan.

Your existing personal loan can have a significant impact on everything from eligibility to interest rates. Read on to get an answer to the question, will getting a personal loan affect getting a mortgage?

Positive Effect of Personal Loans on Home Loan Applications 

Here’s how it affects your application positively:

  • Helps Build a Positive Credit History

If you’ve repaid your personal loan successfully, it creates a good payment record. Responsible repayment behaviour includes:

  1. Timely repayment of your personal loan EMIs
  2. No defaults or loan settlements

When you apply for a mortgage, lenders check how well you handle credit. A positive repayment track sends the right message and you can look forward to quick approval.

  • Reflects Solid Financial Standing

When you repay your personal loan on time, it speaks volumes about your income and employment. Both these aspects are considered when lenders are assessing your second loan application. 

  • Helps You Negotiate for Better Loan Terms

If your existing personal loan repayment record is positive, you are a creditworthy borrower. Thus, you have the power to negotiate for better loan terms.

This way, you can contact the home loan lender and communicate your case for better terms. You can negotiate for the following:

  1. Lower interest rate for the home loan
  2. An extended tenure for the home loan

Negative Effect of Personal Loans on Home Loan Applications

In some cases, this can be harmful:

  • Non-Repayments Lower Your Credit Score

Your credit score summarises your repayment history. Lenders rely on this number to check your credibility and eligibility. Your credit score decreases when you fail to repay your personal loan EMIs as per the pre-decided schedule.

Home loan lenders may hesitate to approve your application when they see that you don’t have an adequate score.

  • Affects Your Debt-to-Income Ratio

This ratio determines the amount that goes towards repaying your existing debt from your total monthly income. This may be due to a:

  1. Personal loan
  2. Auto loan
  3. Credit card 

A higher DTI ratio reflects a high dependence on credit. This may lead to lenders assuming that you don’t have room for a second loan and they may not approve your home loan application.

  • Results in Hard Inquiries by the Lender

Your credit report is generated by credit bureaus like:

  • TransUnion CIBIL
  • Experian
  • CRIF High Mark
  • Equifax

Your credit report is based on:

  • Each minimum payment you make towards your credit card bill
  • The monthly EMI amount on any vehicle loans
  • Any judgments or liens against you
  • Each EMI amount towards your personal loan
  • Additional financial obligations

When you apply for a home loan, the lender will initiate a hard inquiry of your score, which gets recorded in your credit report. Multiple inquiries can hurt your overall financial profile and lead to lenders rejecting your loan application.

  • Incurs Higher Interest Rates

A solid financial profile includes:

  • Stable income and employment
  • High credit score
  • Consistent repayment of your credit
  • Low debt-to-income ratio

If you don’t have these, you may not appear to be a creditworthy applicant. This increases the default risk and lenders compensate with a higher interest. 

Now that you understand how a personal loan can impact your mortgage, you can plan your application wisely. To ensure you have the freedom to prepay and have minimum hoops to jump through, consider getting an Instant cash Loan of up to ₹5 lakhs from Fibe.

You can get the funding at competitive interest rates and repay easily by choosing from flexible plans. What’s more, you can get the funding online with minimal formalities. Download our Personal Loan App or apply directly via our website. 

FAQs on How Personal Loans Affect Getting A Mortgage

Can I get a home loan if I already have a personal loan?

Yes, there is no restriction on the same, even if you have a personal loan.

Will a personal loan affect my mortgage application?

Yes, here’s how it affects your second loan positively:

  • It helps build a positive credit history
  • It assists in debt consolidation
  • It reflects a solid financial standing
  • It helps you negotiate for better loan terms

It affects your home loan negatively in some cases when:

  • It results in hard inquiries by the lender
  • It can lead to higher interest rates
  • Non-repayment of your personal loan lowers your credit score
  • It affects your debt-to-income ratio

Do personal loans affect home loan eligibility in India?

Yes, it can influence your eligibility in these ways:

  • Positively, when you pay your personal loan successfully on time
  • Negatively, when you fail to repay your loan as per the schedule

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