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Am I allowed to take out a personal loan to fix up my mother's basement for me to live in? How do loans work in this situation? Any help would be appreciated. Thanks!

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    Are you asking if you are legally allowed to use the loan to fix up the basement? Or are you asking if the bank will give you a loan for the purpose of fixing up the basement?
    – Ben Miller
    Dec 28, 2016 at 19:45
  • "Allowed" by who? Where are you located?
    – Nosjack
    Oct 20, 2021 at 17:04

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You can take out a personal loan for any reason - to burn the money for fun, if you like.
But be aware that you owe it back, not your mother, or anyone else. They will come to you for the repayments.

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It sounds like you may need to look into the different types of personal loans that are available to you. Typically, they are in 2 categories: secured vs unsecured. A personal loan is usually of the unsecured variety, meaning that the bank is loaning you money with no collateral to use if you default. These loans will have much higher interest rates than a secured loan. A prime example of a secured loan would be a mortgage or an equity line of credit.

If you want an unsecured personal loan to use towards making those improvements, then whether or not you receive the loan will depend on your credit rating and income status. As Aganju stated, these loans don't really care what the money is used for.

Because it's not your property that you're fixing up, you won't be able to get a secured loan against that property. If your mother took out a loan against her home (like a second mortgage), she may be able to get a significantly lower interest rate than what you'll get with an unsecured loan. She could also look into a renovation/remodeling loan, which would require information regarding the work being done such as costs and how it will improve the value of the property. If she used an equity line of credit instead, then they don't typically care what the money will be used for as it's just a credit line against the equity she's already built into her mortgage payments over the years.

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Yes!

Borrowing money to fix something crucial in your mother's home is reasonable and prudent. Personal loans can be useful, given the right circumstances. Be sure to consult with a trustworthy financial institution and weigh your options. Also, check to see if repair costs can be covered by your homeowner's insurance. After all, that's why you pay for it.

Around 6 years ago I had opted for a personal loan through HDFC Bank to repair my mother in law's house. So, I guess you're good to go.

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Of course you are allowed to take a personal loan and use it for any reason, as long as your bank agrees. But that’s not the problem.

The problem is that the money comes out of your pocket and the benefit goes into your mother’s pocket. You have no legal rights to the benefits. What can go wrong?

She can throw you out of her house and your money is gone. She can sell the house and put the extra value that you paid for into her pocket. She can leave all her possessions in her will to the local cat shelter, or to her church minister, or to your four siblings, and if she dies they will say “thank you very much for the renovation” and your money is gone.

So you need to examine the situation, and either decide for yourself that this is unlikely to happen, or set up a contract with her guaranteeing your rights. Obviously it depends on the amount of money, I wouldn’t worry about $1000 but I’d worry about $30,000.

PS. A secured loan (her extending her mortgage) is usually a lot cheaper than an unsecured loan (your bank loan). Again it depends on the amount of money you need and how long you take to repay it.

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