Home Renovation via Personal Loan – Do the Numbers Work Out?

Is upgrading your house really worth taking a personal loan for? That’s the question many middle-class Indian homeowners are asking right now. With skyrocketing construction prices and growing family needs, renovation has become less of a luxury and more of a necessity. 

But most families don't have ₹5,00,000 to ₹10,00,000 just lying around. So they turn to personal loans. Now the big question is – does it make sense financially?

Let’s break it down.

Should You Even Consider a Personal Loan for Renovation?

In India, personal loans are becoming very popular. Why? They are fast, don't need collateral, and you can use them for anything. That sounds great, right? But hold on. Personal loans come with high interest rates. So before you go ahead and sign that application, think.

Imagine this. You want to renovate your 2 BHK flat in Pune. It needs a kitchen upgrade, fresh painting, bathroom changes, and some smart storage. You go to a contractor. He quotes ₹10,00,000. You don’t want to touch your emergency fund. You think: "Why not a personal loan?"

Here’s what you should know. Banks today charge between 10.50% and 24% interest per annum. Depending on your credit score and income, your EMI will change.

Example

Looks easy to pay, but that’s a ₹3.22 lakh extra you’re paying over 5 years. Is your home upgrade going to increase property value by that much?

Most people don’t think that far. They only look at monthly EMI. That’s a mistake.

Let’s Talk Numbers: What Does Renovation Actually Cost?

Renovating in 2025 is no joke. Labour is expensive. Raw materials like cement, plywood, tiles, and paint are all costlier than they were two years ago. And if you’re in metro cities like Mumbai, Bangalore, or Delhi, your costs easily shoot up.

Estimated Cost Table

Now, imagine you go for a mid-range plan. You’ll need at least ₹10,00,000. Even if you do a little cost-cutting, prices won’t come below ₹8,00,000.

Now, compare this with taking a home improvement loan (if you have an existing home loan). You might get 8.5%-10% interest, but paperwork is longer. So people take personal loans instead.

Read More – Should You Buy a House or Rent in 2025

But here’s a suggestion: First, talk to your home loan provider. Check if they offer a top-up or home improvement loan. If not, consider a personal loan.

What You Lose and What You Gain With a Personal Loan

Let's be honest. Personal loans are not cheap money. But they are quick. So what are the trade-offs?

Pros:

• No collateral needed
• Fast disbursal (within 2-3 days)
• Use for any purpose (materials, furniture, labour)

Cons:

• Higher interest rate than secured loans
• EMI pressure for 3-6 years
• No direct property value increase guarantee

But wait. There are some smart techniques you can use.

Tips to Reduce Loan Burden:

• Go for a shorter tenure (3 years instead of 5)
• Prepay small amounts yearly
• Choose banks with lowest processing fees

Personal Loan Options Comparison

Always check your credit score first. A CIBIL score above 750 gives you better rates.

How Does EMI Actually Impact Your Life?

People take loans easily. But when EMI starts, they panic. So how much can you handle?

Let's do a stress test:

If you stretch beyond 40% of your income, you risk missing EMIs. That affects your credit score. Also, reduce the personal loan amount if you already pay a home loan or car EMI.

How to Use the Loan Smartly

Once your loan is approved, don’t rush. Use it in parts. Make stage-wise payments to your contractor. Buy materials at a discount. Avoid buying luxury fittings unless you’re sure.

Also, keep money aside for sudden extra expenses. Many people face surprise plumbing or electrical costs. Keep ₹50,000 aside for these.

Plan your renovation like a project. Get quotes from at least 3 contractors. Check online reviews. Don’t go for the cheapest blindly.

Conclusion

Renovating your house is smart, especially when your family grows or your home feels outdated. But don’t let the pressure of making it beautiful push you into a bad financial situation. 

Also Read - Personal Loans for Home Upgrades

A personal loan can help if you don’t have enough savings, but only when you are confident about repaying it. Think through the monthly EMI. Will you still be able to cover groceries, school fees, and emergencies after paying the EMI? That’s the real question. Use a calculator, compare banks, and keep your loan within your comfort zone. 

Don’t take it just because it’s easy to get. You’re not just fixing your home. You’re also committing your income for the next few years. Spend wisely today so your tomorrow feels secure.

FAQs

1. Can I get tax benefits on a personal loan for renovation? 

Yes. If you use it only for renovation, interest up to ₹30,000 per year is deductible under Section 24(b) of the Income Tax Act.

2. Can I take a loan from NBFCs instead of banks? 

Yes, NBFCs offer personal loans too. But rates are often higher. Compare all before finalising.

3. What documents are needed for a renovation loan? 

You’ll need a PAN card, Aadhaar, six months' bank statement, ITR for the last two years (for self-employed), and a salary slip (for salaried).

4. Can I renovate a rented house using a personal loan? 

Technically yes. But it is risky. You won’t get any return. Use only if the landlord agrees to rent long-term.

5. What if I miss my EMI payments? 

Missing EMIs affect the credit score. You’ll also pay penalties. After 3 months of default, recovery agents may contact you. So take only what you can repay.

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LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?