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Updating your home can quickly become expensive. Just renovating your kitchen carries an estimated cost of $80,000, according to the National Association of Realtors’ 2022 Remodeling Impact Report.
With that cost comes an increased home value and greater enjoyment of your home, but how do you get the money to pay for it? A personal loan for home renovations can help you get the cash you need without using your home as collateral.
- What is a home improvement loan?
- How these personal loans work
- Home improvement loan amounts
- Pros, cons of loans for home improvement
- How to choose a lender
- How to get the best rate on a home improvement loan
- How to apply for personal loans
- Alternative financing options
What is a home improvement loan?
A home improvement loan is a type of personal loan that you can use to finance almost any home-related expense, such as home renovations, repairs, and even emergencies.
Installing solar panels, remodeling a kitchen, replacing siding, or something as simple as replacing carpet can all be done with money from a personal loan. You can even use a personal loan to repair damage from a flood if you don’t have flood insurance or sufficient coverage.
Here are some reasons why a home improvement loan can be a good option:
- Usually requires no collateral: Personal loans are usually unsecured, which means they don’t require collateral. You’ll pay a slightly higher interest rate than with a secured loan, but you won’t lose your home if you miss a payment or can’t afford to pay back your loan. Remember that defaulting on a personal loan will negatively affect your credit score, so it’s not a good idea to take one out if you don’t think you’ll be able to pay it back.
- Fixed rate and monthly payments: A personal loan has a fixed interest rate, which means you’ll have the same monthly payment for the life of the loan. By contrast, credit cards and home equity lines of credit (HELOCs) typically have variable interest rates, meaning that your monthly payments can fluctuate significantly from month to month based on market conditions.
- Fast funding: You can often receive your personal loan funds within one or two business days, though exact funding times vary by lender. Other financing options, such as cash-out refinancing or home equity loans, have stricter underwriting requirements and may require an appraisal.
The personal loan companies in the table below compete for your business through Credible. You can request rates from all of these partner lenders by filling out just one form (instead of one form for each) and without affecting your credit score.
|Lender||Fixed rates||Loan amounts||Check rates|
|7.99% - 29.99% APR||$7,500 to $50,000|
|9.95% - 35.99% APR||$2,000 to $35,000**|
|11.79% - 20.84% APR||$10,000 to $50,000|
|8.99% - 35.99% APR||$2,000 to $50,000|
|7.99% - 24.99% APR|
$2,500 - $40,000
|11.52% - 24.81% APR||$5,000 to $40,000|
|9.57% - 35.99% APR||$1,000 to $40,000|
|7.99% - 35.99% APR||$2,000 to $36,500|
|7.99% - 25.49% APR with autopay||$5,000 to $100,000|
|18.0% - 35.99% APR||$1,500 to $20,000|
|8.49% - 17.99% APR||$600 to $50,000 |
(depending on loan term)
|14.3% - 35.99% APR||$3,500 to $40,000|
|8.99% - 25.81% APR10||$5,000 to $100,000|
|11.69% - 35.99% APR7||$1,000 to $20,000|
|8.49% - 35.99% APR||$1,000 to $50,000|
|5.2% - 35.99% APR4||$1,000 to $50,0005|
Check Out: How to Get a Personal Loan
How do home improvement personal loans work?
Personal loans, including those used for home improvements, are known as term loans or installment loans. This is because when you take out the loan, you get a lump sum of money that you pay off in monthly installments over a predetermined loan term.
Everything about your personal loan repayment is fixed — your interest rate, repayment term, and loan amount. And because these loans have repayment terms that don’t change, you know exactly when you’ll make your last payment.
Personal loan repayment terms can range from one to seven years. The longer your repayment term, the lower your monthly payments will be. However, a longer loan term will also result in more interest over time. If you opt for a shorter repayment term, your monthly payments will be higher but you’ll save money on interest over the life of the loan.
How much can I borrow with a home improvement loan?
Personal loan amounts can be as low as several hundred dollars or as high as $100,000 or more, depending on your lender and your creditworthiness. Some lenders may offer $100,000 personal loans to well-qualified borrowers, while others may cap their loan amounts at $20,000. Be sure to check a lender’s minimum and maximum loan amounts before applying for a loan, especially when looking for a large home improvement loan.
Pros and cons of a personal loan for home improvement
Taking out a personal loan to pay for a home improvement project can be a great option if you need money quickly or don’t want to risk losing your home if you can’t afford to pay back your loan. But a personal loan for home improvements has pros and cons to consider:
|No risk of losing the home if you can't pay off the loan||Interest rates can be higher, especially for poor credit scores|
|Fast funding||No tax benefits like a HELOC or home equity loan might have|
|Fixed monthly payments||Taking on additional debt|
|Flexible funding amounts, sometimes as much as 100K||Lower maximum loan amounts compared to HELOC|
How to choose a home improvement lender
If you decide to take out a home improvement loan, it’s important to compare multiple personal loan lenders to find one that works for your situation. Here are some things to consider as you’re comparing home improvement loans:
- APR/Interest rate: The rate on your loan is how much you’ll pay the lender to borrow money. The annual percentage rate (APR) includes the cost of any fees in addition to the interest rate. If you’re looking to see how much borrowing money costs you, the APR is a better number to focus on when comparing rates between lenders.
- Fees: Some personal loan lenders charge fees, but some don’t. It’s a good idea to check so you can make a proper comparison.
- Repayment terms: These can vary from less than a year to up to 12 years for a home improvement loan, depending on the lender. A longer loan term will lower your monthly payment but cost you more in interest over time.
- Payment options: If you’re comfortable with autopay or prefer it, some lenders will give you a discount on your interest rate if you sign up for automatic payments.
- Credit score requirements: Most lenders require a good credit score, but some work with borrowers who have low credit scores. You’ll pay a higher interest rate for a personal loan if you have bad credit, so you may want to consider adding a cosigner with good credit. This could increase your chances of loan approval, or of getting a better interest rate. Just make sure your cosigner understands that they’ll be on the hook for the loan payments if you default.
How to get the best rate on a home improvement loan
A good APR can save you thousands of dollars over the life of your loan. Here are a few things you can do to ensure you get the best rate:
- Improve your credit score. Perhaps the most important factor that determines your personal loan rate is your credit score. The better your credit score, the lower the interest rates you’ll be eligible for. If your current credit score won’t get you a good interest rate, consider working on boosting your score before applying for a loan. You can improve your credit score by making on-time payments every month, paying down debts, and not closing old accounts.
- Prequalify with multiple lenders. Before choosing a lender, shop around and prequalify with multiple lenders to see which one offers you the best rate. This way, you’ll have a more realistic idea of what terms you can expect to get when you apply.
- Take advantage of discounts. Some lenders offer a discount on your interest rate if you sign up for autopay for your monthly payments. When shopping for a lender, be sure to find out if they offer any discounts.
- Apply with a cosigner. If you don’t have great credit, consider applying with a cosigner who has strong credit. Your lender will consider your cosigner’s credit in addition to your own, so you may qualify for a better rate. Not all lenders allow you to apply with a cosigner, so contact the lender beforehand to see if you can.
How to apply for a home improvement loan
If you want to apply for a home improvement loan, follow these four steps:
- Review your credit report. You can request free copies of your credit report from each of the main credit bureaus by visiting AnnualCreditReport.com. Check for any errors and dispute them directly with the credit bureaus to potentially boost your score and qualify for a better interest rate.
- Shop around and compare lenders. You can apply for prequalification from multiple lenders without affecting your credit score. Getting prequalified lets you see the rate and terms a lender is likely to offer you. Compare loan options from at least three to five different lenders to make sure that you’re getting the best deal.
- Apply. Pick a lender and follow its steps to apply. You may need to verify your identity and income with a copy of your driver’s license, pay stubs, and tax returns.
- Receive your loan funds. If you’re approved, you’ll sign a loan agreement and the lender will disburse your loan funds, typically through direct deposit to your bank account. This can take anywhere from one to seven business days, depending on the lender.
Alternative ways to finance a home improvement project
The cheapest way to finance a home improvement project is to delay it and save up for it in advance. If you can’t wait, depending on your financial situation, there may be a better option to finance a home improvement project than a personal loan.
Home equity loan or home equity line of credit (HELOC)
A home equity loan or HELOC both use the equity you’ve built up in your home as collateral. But they have a couple differences:
- Home equity loan: A home equity loan is essentially a second mortgage. With a home equity loan, you apply for and receive a fixed amount with a fixed interest rate that you pay back with equal monthly payments. These loans have lower interest rates than personal loans because they’re backed by your home.
- HELOC: A HELOC is a type of credit line also backed by your home. You can draw as much or as little as you need, up to your credit limit. HELOCs typically have a draw period where you only have to make interest payments, followed by a repayment period where you pay back what you’ve borrowed.
FHA Title 1 loan
An FHA Title 1 loan is a special type of loan backed by the U.S. Department of Housing and Urban Development. FHA Title 1 loans will have a fixed rate similar to mortgage rates in your area. You must use the loan funds to finance alterations, repairs, and improvements that must substantially improve the basic livability or utility of the property.
The maximum amount you can borrow without using your home as collateral is $7,500. If you secure the loan with your home, you can borrow up to $25,000 for a single-family home and pay it back between six months and 20 years and 32 days.
0% APR credit card
Credit card interest rates are typically much higher than the rate you could get with a personal loan, so putting your home improvement expenses on a credit card is generally not a good idea.
But there’s one exception to this rule: If you get a new credit card that’s offering a promotional interest rate of 0% APR, you’ll pay zero interest on your balance until the promotional period is up. This can be anywhere between nine and 21 months, depending on the card.
Like a home equity loan or HELOC, a cash-out refinance loan allows you to use the equity in your home as collateral. However, this type of loan works very differently.
A cash-out refinance is a type of mortgage refinance, meaning you’re fully replacing your current mortgage with a new mortgage. But instead of borrowing an amount equal to your current loan balance, you borrow more and pocket the difference. You can use this to pay for home renovations.
A cash-out refinance may allow you to borrow more than you can with a personal loan, and if rates have dropped since you took out your current mortgage, you may be able to get a lower interest rate. Additionally, you won’t have an extra monthly payment since you’re simply replacing your current mortgage payment.
Rae Hartley Beck has contributed to the reporting of this article.