If you are planning to undertake some home renovations, you must be aware that even the most trivial modifications can eat up enormous sums of your cash. One great way to make your project lighter on the pocket is to take out a home improvement loan, which is essentially a personal loan that is explicitly tailored to help you pay for renovation costs.
A personal loan for home repairs can be a good choice based on the interest rate you are able to secure as well as on your needs. Nevertheless, other financing options can be more affordable in the end.
In this blog post, Jacaranda Finance outlines everything you should know about a personal loan for home improvement projects and shares whether it is the right choice for you.
What We’ll Cover:
- What are Home Improvement Loans?
- Key Features of Improvement Loans
- Is It Good to Use A Personal Loan for Home Improvements?
- Personal Loan for Home Renovations: Pros & Cons
- Things to Consider Before Selecting A Lender for Your Home Improvement Loan
What Are Home Improvement Loans?
As mentioned earlier, a home improvement loan is essentially a personal loan that is explicitly tailored to help you finance home repairs and renovation. Borrowers can use the loan for large projects such as a bathroom or kitchen remodelling, constructing a new garage, refinishing an old basement, or fitting a swimming pool at your future apartment in stoney brook fultondale al.
In addition to this, the loan can also be utilised for small jobs, such as outfitting the residence with solar panels or new windows/door, as well as for emergency repairs.
Key Features of Home Improvement Loans
Although personal and home improvement loans are essentially the same, some lenders market both offerings separately. Nevertheless, here are some of the main features these loans share:
- Quick and easy lump sum funding – Many lenders can deliver a personal loan for home renovations into your bank account in as little as 1 to 3 days. Moreover, loan amounts generally range from $1,000 –$100,000.
- Generally requires no collateral – Just like most personal loans, a home repair loan too is unsecured. Meaning they would not need collateral for security. Hence, your property would not be at risk in case you fail to make payments.
- Greater interest rates – As home improvement loans are unsecured, they tend to come with steeper interest rates in contrast to secured loans, such as “home equity lines of credit” (HELOCs) or “home equity loans” where your property is kept as collateral.
- Fixed monthly payments and APR – These loans usually come with monthly repayments and fixed interest rates over a fixed number of years, which means you would know exactly how much the loan would cost you ahead of time. This way, you can easily budget accordingly.
Is It Good to Use A Personal Loan for Home Improvements?
Well, the answer to this question depends on several factors and can vary from person to person.
Since personal loans are unsecured and don’t require any collateral, they tend to come with greater interest rates in contrast to other loans, such as home equity lines of credit (HELOCs) and home equity loans.
However, be aware that in order to use these financing options, you would have to keep your property as collateral. In addition to this, you must also have sufficient equity in your home, i.e. the difference between the total worth of your home and the total amount you owe on the mortgage. The size of the equity determines the amount you can borrow as home improvement loans.
With a personal loan for home renovations, you would neither need equity nor would you put your home at the risk of losing it for good. Nevertheless, in case you somehow do default on a loan, do not be surprised if there is a significant drop in your credit score – along with a default notice that might perhaps stay on your credit record for almost seven years!
Another reason to use a personal loan for home improvements is that the application process for this loan is generally way less complicated than applying for some other home improvement financing options (for e.g. home equity loans), particularly if you have a good credit score.
In that scenario, you might be asked to show proof of employment and income. Please note that even if you have a bad credit score, a personal loan is still pretty much possible. There is no denying you would almost definitely get the best interest rates with a good to excellent credit score. However, some lenders might still offer you a loan, considering you use credit responsibly and have a good employment history.
Personal Loan for Home Renovations: Pros & Cons
If the discussion above has not fully answered your concern, i.e. whether you should use a personal loan for home renovations or not, no problem. Below, we have outlined some of the major benefits and shortcomings of home improvement loans to help you make an informed decision.
|Quick and easy lump sum funding||No tax benefits|
|Low fees||Steep interest rates|
|No collateral (no risk of losing your home)||Lower maximum loan amounts|
Selecting A Lender for Your Home Improvement Loan
We strongly recommend you to explore around before settling with a lender as lenders offer varying fees and interest rates. Some lenders even promise to close on loans sooner than others. In general, look for the following factors:
- No fees – Some lenders provide personal loans for home repairs with no fees. This means you can evade late payment charges, origination fees (a processing fee that’s usually 1 per cent to 8 per cent of the total loan amount), prepayment penalties, and more. Therefore, always double-check the payment terms before you commit.
- Low APR – Remember, to receive the lowest interest rates, you’d need an excellent credit score.
- Positive reviews – This is another thing you can go through in order to make an informed decision. Head to the web for a myriad of reviews of lenders that offer home improvement loans; reputable companies usually have long track records.
There you go, now you know everything regarding home improvement loans, from what they are to whether they are good for you. For those who can deal with the requirements of personal loans, there might be nothing better.
However, if you feel home improvement loans aren’t the right option for you, don’t worry. There are many other alternatives to choose from, such as home equity lines of credit (HELOCs) and home equity loans.
If you feel home improvement loans are your only option, be sure to go through the terms and conditions of the lender you intend to commit with.