Home improvement loans

Generally, no — personal loans are still widely available despite the COVID-19 pandemic, which could be especially valuable if you need help making ends meet. You’ll still typically need good credit and verifiable income to get approved for a loan with most lenders, including online lenders, banks, and credit unions. Keep in mind that some lenders might have more stringent requirements to ensure that borrowers can repay their loans, though.

Additionally, some lenders are offering coronavirus hardship loans that might be easier to qualify for if the pandemic has impacted your employment. These small emergency loans might come with low or even 0% interest, depending on the lender.

Read More: COVID-19: How Personal Loan Lenders Are Helping Borrowers

A home improvement loan is a type of personal loan geared toward covering expenses for home repairs, remodels, or updates. Personal loans are typically unsecured, so your property won’t be at risk if you can’t make payments — though missing payments will still damage your credit.

There are also other kinds of loans that might help you pay for home improvements — for example, you could tap into your home’s equity with a home equity loan or home equity line of credit (HELOC). Or you could consider a cash-out refinance. However, keep in mind that with these types of loans, you risk losing your house if you can’t manage your payments.

While eligibility requirements to get a personal loan can vary by lender, there are some common requirements you’ll likely come across, including:

• Good credit: You’ll typically need good to excellent credit to qualify for a home improvement loan — a good credit score is usually considered to be 700 or higher. There are also several lenders that offer personal loans for bad credit, but these generally come with higher interest rates compared to good credit loans.

• Verifiable income: Some lenders have a minimum required income while others don’t. But in either case, you’ll likely need to provide proof of income to show you can afford to repay the loan.

• Low debt-to-income ratio: Your debt-to-income (DTI) ratio is the amount you owe in debt payments each month compared to your income. To be eligible for a personal loan, you’ll generally need to have a DTI ratio of 40% or less — though some lenders might require you to have a lower ratio than this.

With Credible, you can compare your prequalified rates from multiple lenders after filling out just a single form — this way, you won’t have to visit each lender’s site to see if you qualify. Additionally, checking your rates with Credible uses only a soft credit check, which means your credit won’t be affected.

Here are a few strategies that could help you get the best home improvement loan rates:

• Improve your credit. Your credit is one of the major factors that impacts what rates you’re offered. In general, the better your credit, the lower your interest rate. A couple of ways you might be able to build your credit and get more favorable rates include making on-time payments on all of your bills or paying down credit card balances.

• Apply with a cosigner. Having a creditworthy cosigner could help you qualify for better rates than you’d get on your own — even if you don’t need one to get approved. Anyone with good credit — such as a parent, other relative, or trusted friend — could potentially be a cosigner.

• Compare rates from multiple lenders. Be sure to spend some time researching and comparing personal loan interest rates from as many lenders as you can, as you might get a better rate from one lender over another.

Before you take out a home improvement loan, here are a few pros and cons to consider first:

Pros

• Fixed interest rates: Personal loans generally have fixed interest rates, which means your rate and payment will stay the same throughout the life of your loan.

• No collateral required: Most personal loans are unsecured, so you won’t have to worry about providing collateral.

• Long repayment terms: You could have one to 12 years to repay a personal loan for home improvement, depending on the lender you choose.

Cons

• Fixed loan amounts: Personal loans are paid out in a lump sum. If you need more money, you’ll have to apply for another loan. This could be less than ideal if you’re not sure exactly how much your home improvements will cost — or if you end up needing more money than you expected.

• Potentially higher interest rates: Because personal loans aren’t secured by collateral, they pose more of a risk to the lender. As such, they can come with higher interest rates compared to other options like home equity loans or HELOCs.

• Might come with fees: Some lenders charge fees for personal loans, such as origination or late fees. These can add to your overall loan cost.

Certain home improvements can add value to your home, such as by:

• Increasing the square footage: A room addition (or the addition of another floor) that increases the size of your home can increase its value.

• Cutting your energy bill: Installing double-pane windows and insulation or adding rooftop solar panels can help cut your energy bill which can add to your home's value.

• Keeping it modern: A well-maintained home can command a higher asking price, so home repairs and modern remodeling can also be a good investment.

• Boosting curb appeal: Updating your landscaping or home exterior can make your home more attractive to prospective buyers.

Because of this, you could consider a home improvement loan as a way to potentially raise your home’s value.

However, before you take out a home improvement loan, it’s important to consider how much that loan will cost you. This way, you can be prepared for any added expenses. You can estimate how much you’ll pay for a loan using our personal loan calculator.

Personal loan repayment terms generally range from one to seven years, depending on the lender. There are also some lenders that offer longer terms specifically for home improvement loans — for example, you could have up to 12 years to repay a LightStream loan. Just keep in mind that if you choose a longer term, you’ll pay more in interest over time.

In comparison, terms on home equity loans can range from five up to 30 years, depending on the lender.

Whether a home equity loan or personal loan is better for renovations will depend on your unique financial situation. For example, if you’re a homeowner with plenty of equity in your home, then you might prefer to use a home equity loan so you can take advantage of lower interest rates.

But if you have fewer home improvements to pay for or don’t want to put your home at risk in case you might not be able to make payments, then a personal loan could be a better choice.

In some cases, you might be able to deduct points (also known as loan origination fees or discount points) paid on a loan that is used to substantially improve your home. However, on top of having to meet several tests, your loan must be secured by your primary home to be eligible — which means a personal loan for home improvements won’t qualify.

But if you decide to take out a loan secured by your home — such as a home equity loan — and pass the required tests, then you might be eligible for a tax deduction provided you make “substantial home improvements,” according to the IRS. For an improvement to be considered substantial, it must fall under one of the following categories:

• Adds to the value of your home

• Prolongs your home's useful life

• Adapts your home to new uses

While many lenders require borrowers to have good to excellent credit, there are also several that offer personal loans for bad credit. However, keep in mind that these bad credit loans can come with higher interest rates compared to good credit loans — meaning you’ll pay more for the loan overall.

If you’re struggling to get approved for a home improvement loan, consider applying with a cosigner. Not all lenders allow cosigners on personal loans, but some do. Even if you don’t need a cosigner to qualify, having one could get you a lower interest rate than you’d get by applying alone.

Just remember that your cosigner will share responsibility for the loan — which means they’ll be on the hook if you can’t keep up with your payments.

To find the best personal loan lender for a home improvement loan, it’s important to compare as many lenders as you can. Consider not only interest rates but also repayment terms and any fees charged by the lender — this way, you can choose the best lender for your needs.