What Is a Home Improvement Personal Loan?
Your home is likely your largest investment. And while there are many pros to home ownership, the cost of maintaining and improving your biggest investment doesn’t always come cheap. Whether you need to tackle some major home improvement projects or remodel to boost resale value, a home improvement personal loan may help you finance your goals.
But what is a home improvement personal loan—and is it right for you? Here is what you need to know.
In This Article
- What Is a Home Improvement Loan?
- 5 Lending Options for Your Home Improvement Project
- Is a Home Improvement Personal Loan a Good Idea?
A home improvement loan is a type of personal loan used for home repairs or renovations. Many personal loans don’t require collateral and offer fixed rates with set repayment periods.
What can home improvement loans be used for?
Home improvement loans can help you finance:
- Room additions, bathroom and kitchen remodels
- New sunrooms, decks, patios, and porches
- New exteriors (shingles, siding, painting)
- Swimming pools, spas, and landscaping
- Home repairs (roofing, gutters, plumbing)
- Energy-efficient upgrades (solar panels, HVAC, replacement windows, doors, and weatherproofing)
How does a home improvement loan work?
When you take out a personal loan for home improvement, you’ll typically receive your funds in one lump sum. You can use the funds for nearly anything related to your home improvement project. You’ll then make monthly payments through the life of your loan. However, there are different types of funding options available. A home equity loan or line of credit uses the equity in your home to secure cash for a remodel. For smaller projects, some people also turn to credit cards. Before you decide which type of financing is right for you, it is important to consider the pros and cons of each.
Before launching into your home improvement projects, know the financing options available.
1. Home equity loan
A home equity loan is essentially a second mortgage that allows homeowners to borrow against the equity in their home. It typically comes as a lump sum of cash with a fixed interest rate and set repayment period.
Is using a home equity loan right for you?
Home equity loans can carry lower interest rates than unsecured personal loans. However, the difference in rates could be offset by any closing costs you’ll incur—like application processing fees, home appraisal, notary fee, title search, attorney’s fees, and additional fees, such as points to buy down the interest rate. It pays to shop around and carefully compare costs for different types of loans. Just like your original mortgage application, home equity loans and lines of credit require extensive underwriting documentation and can take 30 days or longer to complete.
Keep in mind, if you do not have much equity in your home, you may not qualify for a home equity loan. You’ll also be securing your loan against your home, and you could risk losing the property if you default on the payments.
2. Home equity line of credit (HELOC)
A home equity line of credit is a source of funds, like a credit card, that is tied to your home and available for you to access whenever you choose. Because it’s a secured loan—meaning it’s taken out against the value of your home equity, lenders may be willing to offer lower interest rates than they do for other types of personal loans.
Is using a HELOC right for you?
Most home equity lines of credit have variable interest rates, which means your monthly payment may fluctuate. And since your home serves as collateral for the loan, if you default on the loan, the bank may repossess your house to make good on your debt.
3. Cash out refinance
With a cash out refinance, you take advantage of the equity you’ve built in your home by receiving cash in exchange for taking out a new larger mortgage.
Is using a cash out refinance right for you?
It depends on mortgage rates and how long you plan to live in your home. Typically, you’ll recoup more over the life of your loan if you stay put long term. And since cash out refinancing requires revisiting your mortgage terms, it’s best considered when rates are low, or lower than when you originally took out the loan.
Make sure to compare your closing costs to the project’s budget to make sure a cash out refinance is worth it.
4. Personal loans
A home improvement personal loan from LendingClub Bank is a fixed-rate loan repaid over a set period. It can be used to cover the entire cost of your home improvements, can be faster than tapping into home equity, and less costly than revolving high-interest credit cards.
Is using a personal loan for home improvements right for you?
If you don’t have much equity in your home or want to avoid adding more high-interest credit card debt, an unsecured personal loan for home renovations can be a smart choice. Depending on your credit rating and the interest rate you can obtain, a personal loan can offer a monthly payment that works within your budget.
Personal loans typically come with fixed interest rates, fixed terms, and fixed monthly payments that never change. For homeowners, knowing what your payment will be makes it much simpler to budget around your other monthly expenses. Unlike credit cards, you will have a clear view of the entire repayment period and you’ll know the exact date your personal loan will be paid in full.
While many personal loans are unsecured, some may require collateral to back the loan. Read the fine print and make sure you fully understand the terms before agreeing to any loan. Different lenders may also offer different rates and terms. It is helpful to compare prequalified offers with at least three lenders to make sure you’re getting the best deal available to you.
5. Credit cards
In the case of a home emergency, such as a broken water heater, leaky roof, or mold, credit cards are good in a pinch. When you use an existing credit card, there’s no application and no wait time. And if the amount you need is small (under $1,000), and you expect to pay it off in a couple of months, using a credit card can be more convenient than applying for a personal loan.
Is using a credit card for home improvements right for you?
Most credit cards come with high, variable interest rates. If you’re in the habit of only paying the minimum amount each month, the effect of compounding interest can add up quickly. Ultimately, this will increase your total amount owed and extend the time it will take you to pay back the loan. Putting expensive home improvement and repair costs on a credit card is not the best choice if you know it will take you several months or years to pay those in full.
|Can be unsecured (no risk of losing your home)||Depending on the lender and your credit score, interest rates could be higher than home equity loans|
|Quick and easy application process; fast access to money||No tax deduction benefits|
|Usually no prepayment penalties & may have better APRs than average credit cards||May include an origination fee (this is typically lower than closing costs on a home equity loan or line of credit)|
To find the best home improvement loan, it pays to shop around. This means doing your research and exploring your options. When you borrow responsibly—only taking on a loan you can afford to repay and making all your payments on time—a personal loan can help you affordably finance major home repairs and improvements.
You can check your rate from LendingClub Bank—with no impact to your credit score. Personal loans are available through LendingClub Bank for as low as $1,000 and up to $40,000—and you could be approved in 24 hours and have the money within two days.1,2
Home Improvement Personal Loan FAQs
Still have questions? Some of these commonly asked questions may provide the answer.
1. What type of loan is best for home improvement projects?
It depends on your financial situation and the type of home repair you want to do. If you prefer not to use your property as collateral, unsecured personal loans could be the best type of loan for expensive home improvements or large renovation projects. Instead of a lengthy underwriting process (common with home equity loans), the lender will look at your credit score and credit history, your income, and any current debt to determine the loan offer. Remember to compare lenders, loan rates, and fees before deciding.
2. Should I get a personal loan for home improvements?
If you are planning on future home improvements but are afraid to use your home as collateral, applying for a home improvement personal loan is a great idea. With home improvement personal loans, you can benefit from a quick and easy application process, fixed rates, and affordable monthly repayment terms.
3. How does a home improvement personal loan work?
The first step in getting a home improvement personal loan is to check your rate. LendingClub Bank makes it easy to check your rate in minutes—it’s free and won’t impact your credit score. Comparing rates against several lenders can help you see what you qualify for. Once you find a loan offer that works for you, you’ll fill out a formal application. Usually your lender will conduct a credit check, verify your income, and personal information. Once approved, funds will be deposited to your account in one lump sum. You’ll then make monthly payments through the life of your loan.
4. Is a home improvement loan tax deductible?
Home improvement loans may be tax deductible if those loans are secured by the home, but you should speak with a qualified tax advisor before taking out your loan and before filing your taxes.
5. How can you get a home improvement loan with bad credit?
A home equity loan may be the easiest way to borrow money for home improvements with imperfect credit. This is because the loan is tied to your home as collateral, which makes it less risky for lenders guarding themselves against defaults. But keep in mind, if you fail to repay the loan, the lender may be entitled to the equity in your home.
1Of all personal loans approved between 10/1/20 - 12/31/20, 69% were approved within 24 hours.
2Between July 2021 and September 2021, more than two-thirds of personal loans issued by LendingClub Bank were funded within 48 hours after loan approval. The time it takes for a loan to be funded is not guaranteed and individual results vary based on multiple factors, including but not limited to investor demand.