Personal Loan for Home Improvement: The Pros, Cons, and Everything in Between
Did you know that Americans spent $420 million on home improvement projects in 2020? Home improvement projects are a great way to increase your home value, make your house more comfortable, and lower the cost of utility bills.
While there are several benefits to doing home improvements, they are costly. The average cost of a kitchen renovation is anywhere from $15,000 to $75,000, depending on how much you renovate and the finishes.
If you are like most people, you don’t have $75,000 laying around. If you want to do home renovations but don’t have enough cash, consider getting a personal loan for home improvement.
Do you want to learn more about taking out a personal loan for home improvement? Keep reading to learn all about home improvement loans.
What Are Home Improvement Loans?
Home improvement loans are personal loans that you take to renovate your house. When you get a home improvement loan, you get a lump sum of money that you pay back through monthly payments.
Unlike house and car loans (or bridge loans that complete in 7-21 days typically), most personal loans are unsecured loans. That means that there is not any collateral to back the value of a loan. When you have a house loan, the bank can take your house if you don’t make payments.
Because home improvement loans are unsecured loans, your loan conditions will depend on your credit score, history, and lender. If you don’t repay the loan, it will damage your credit score.
Benefits of Home Improvement Loans
Why should you consider getting a personal loan for home improvement? Whether you are doing minor or large renovation projects, there are several benefits to getting a home improvement loan.
Here are some of the benefits:
Fixed Payments and Interest Rates
One of the best things about personal loans is that they come with fixed payments and interest rates. When you take out a personal loan, you know exactly how long it will take to pay it off. This makes it easy to include the personal loan in your monthly budget.
No Collateral Required
Another benefit of getting a personal loan is that it does not require collateral. If you fault on the loan, you don’t have to worry about losing your house. To qualify for a personal loan, all you need to have is a good credit score.
Few Extra Fees
One of the best things about personal loans is that they don’t come with extra fees. Because personal loans are simple, you won’t have to worry about a downpayment or application fees.
While some loan types take a long time to get approved, that is usually not the case with a personal loan. After you apply for a personal loan, the money should be in your bank account after a couple of days.
This is especially useful if you can’t wait to do home repairs. If you need to fix your plumbing or buy a new appliance right away, personal loans are one of the fastest ways to do it.
If you are looking for one of the best personal loans for home improvement that you can get approved for fast, Plenti could have the perfect solution for you.
Disadvantages of Home Improvement Loans
While there are plenty of benefits to taking out a personal loan, there are also disadvantages. Because the loans are unsecured personal loans for home improvement, they may be more costly.
Here are some things to consider before taking out a home improvement loan:
One of the worst things about taking out a personal loan for home renovations is that they come with high-interest rates. Anytime you take out an unsecured loan, you can expect to pay more for interest because there is no collateral.
Average interest rates for personal loans range anywhere from 5%-35%. The exact interest rate of your personal loan depends on your credit score, credit history, and the lender.
The higher the credit score, the lower the interest rate. If you decide to take out a secured loan instead, you will have a lower interest rate, but you will have to use your house as collateral.
Lower Loan Amounts
In general, personal loans come with lower limits than some other types of loans. Most lenders don’t offer more than $50,000 for a personal loan.
If you plan on doing a major kitchen or bathroom remodel, you may need more than that. In those cases, find a different type of loan to finance your home renovations.
No Tax Breaks
Did you know that some types of loans may qualify you for tax breaks? If you put your home improvement costs on top of your mortgage, you can claim that for tax breaks. Unfortunately, there aren’t any tax breaks for personal loans.
How to Choose a Personal Loan
Now that you know what home improvement loans are, the benefits, and the disadvantages, how do you choose a personal loan? Like all types of loans, personal loans come with different conditions.
Before you apply for a personal loan, you should shop around and compare different lenders. You can find personal loans at the bank, credit unions, and online.
Here are some different factors to consider when looking for a personal loan:
One of the most important considerations to make is APR. The APR will tell you how much interest you can expect to pay on the loan. The lower the APR, the better the loan.
If you have a good credit score, you can qualify for a loan with a lower APR. If you have a poor credit score, you will be paying more money to get a personal loan.
Another important consideration to make when choosing a personal loan is the loan terms. How long do you want to be paying on this loan? Can you afford to find a loan with shorter terms?
While a loan that lasts you 10 or 20 years will have a lower monthly payment, you will end up paying a lot of money for that loan. Look for the lowest loan terms you can comfortably afford.
How much money do you need to complete your renovation project? Once you determine exactly how much you plan to spend, look for a loan for slightly more than that amount.
Do You Need a Co-Signer?
If you don’t have the best credit or your credit history is new, the lender may require you to get a co-signer. Having a co-signer on the loan can lower your interest rates if they have a good credit score.
Before you take out a new personal loan, be sure to check out the reviews. You want to find a lender that offers fair rates, good customer service, and is easy to work with.
Most reputable lenders will have plenty of customer reviews to read before making a decision. If the lender seems too good to be true, they probably are.
How to Get a Personal Loan
If you want to get a personal loan to do home improvements, how do you get one? Once you have done your research, found the right lender, and found a personal loan that works for you, the next step is to apply.
The lender will look at your credit score, credit history, current debt, and how much money you make. You can get personal loans through your bank, credit union, or online lenders.
Luckily, it doesn’t take long to get approved for personal loans. If you get approved, you could have the money in your account right away and start working on your renovations.
Keep in mind that as soon as you get the money in your account, you will need to start making payments. Make sure you understand when your first payment is due.
Other Home Improvement Financing Options
If a personal loan doesn’t sound like the right financing method for you, there are other options. Instead of getting a personal loan, you can get a credit card, home equity loan, or save up some cash.
Credit cards can be a good option if you can find cards with 0% interest for a certain amount of time. If you can pay off the balance before interest starts collecting, you can save money on your renovations.
Home equity loans allow you to borrow money against your home mortgage. These loans have lower interest rates and longer loan terms than personal loans, but you do have to use your home as collateral.
If your repairs aren’t urgent, saving money for home renovations is one of the best options. You won’t have to worry about interest, monthly payments, and the stress of applying for financing.
Are You Ready to Get a Personal Loan for Home Improvement?
Doing home improvements is a great way to increase the value of your home and make your living conditions more comfortable. If you need help financing home improvements, consider getting a personal loan for home improvement.
Did you enjoy reading this article on unsecured personal loans for home improvement? If so, check out the real estate and home category for more helpful advice!