Buying a home is very difficult with the current market rates in most cities being very high. One will consider him/herself lucky if they are able to get a home that they like and are able to pay for the home. But there are a few who make their own luck by buying a piece of land and constructing a house the way they want it to look with all the amenities they desire.

Even if a person has money to buy the land they may not have enough funds to construct the house so where can they get the money from? In this article we are comparing the 2 loans – home construction loan and personal loan to help those looking to make their own luck by constructing their home

What is a home construction loan?

A home construction loan is a loan given exclusively for the purpose of constructing a house on a piece of land already owned by the borrower.

Advantages of home construction loan

The biggest advantage of a home construction loan is the lower interest rate and longer tenure. Currently the home construction loans have interest rates ranging from 8% to 12% with tenure to a maximum of 20 years.

Disadvantages of home construction loan

The loan can be taken only if the property is under the borrower’s name. i.e. the borrower needs to be co-owner of a property for him/her to be eligible for the construction loan. In such cases the son or daughter cannot take the loan on behalf of their parents.

The whole amount required for the construction cannot be obtained as banks only provide loans to a maximum of 80% to 85% of the construction cost.

The second disadvantage is that the funds will be released in time intervals i.e. in a phase after an officer from the bank has inspected the construction site to verify if the construction is going according to plan. So, there will be an oversight and the if the funds are not released on time the construction will be held up.

Advantage of Personal loan

A personal loan is an unsecured loan which can be used for any purpose. It has no oversight and funds will be provided in full to the borrower. If you have a good salary and working in a good company with a good credit score you can get higher loan amounts.

Disadvantage of Personal loan

The biggest disadvantage of the personal loan is that it comes at a higher interest rate and lower tenure. The interest rate varies between 12% to 30% with an average of 15%. The maximum tenure that is available is only for 5 years. Another disadvantage is that the personal loan amount that a person is eligible depends on their salary. Hence lower your salary, lower the loan amount.


It will cost at least Rs.25 lakhs to Rs.30 lakhs to construct a house in the metro cities while it might cost much lesser in villages. The type of loan as you can see will depend on the amount you want. If it is high then you will need to go for a construction loan, at the same time if it is low you can opt for a personal loan. The requirement is what will determine your loan type.