What Is a Home Improvement Personal Loan?
Making major improvements to the safety and comfort of your home can set you back a significant sum. Choosing the right project and home improvement loan can help you to quickly, easily and more affordably extend the life of your home, improve resale value, and boost curb appeal.
In This Article
- What Can Home Improvement Loans Be Used For?
- Is a Home Improvement Loan a Good Idea?
- 3 Ways to Fund a Home Improvement Project
- Loan Options With LendingClub
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)
|No collateral required (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 & better APRs than most credit cards||May include an origination fee (this is typically lower than closing costs on a home equity loan or line of credit)|
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 idea. 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. For 2019, average APRs for personal loans range from 10% to 28%. Repayment terms generally vary from one up to seven years in length. While some banks and credit unions offer competitive rates and terms on personal loans, often you can find some of the best deals through online lenders and lending marketplaces.
It starts with a simple online application. Just indicate how much you want to borrow and what the money is for. If you qualify, you may receive multiple offers in just a few minutes. In many cases, adding a coborrower can help you qualify for a better rate or, possibly, a higher loan amount. For larger, more expensive projects (like adding a granny unit above the garage or new kitchen appliances), applying with a coborrower who has excellent credit can work in your favor.
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. And compared to home equity loans (which require your home as collateral), an unsecured personal loan is based solely on your (or your coborrower’s) creditworthiness.
Once you select a loan offer for your home improvement needs, you may be asked to confirm your identity, income or employment. Once approved, the money is usually transferred directly into your bank account.
Before making a decision about home improvement financing, here are some options you might also want to take into consideration:
1. Home equity loan or line of credit
If you’ve been seeing rising real estate values in your neighborhood, you may have accumulated a substantial amount of home equity. Home equity is the difference between the appraised value of your home and your current total mortgage balance. Using your home as collateral, you could borrow up to 75-90% of the equity available, depending on the type of home equity loan or line of credit you’re applying for, your credit and income, and the lender.
Home equity loans and lines of credit generally come with lower interest rates than unsecured personal loans. However, the difference in rates could be offset by any closing costs you’ll incur (similar to what you paid when you took out your first mortgage). Closing costs can include 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. Keep in mind that 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.
Is a home equity loan or line of credit right for you?
If you can show you’re using the money to improve your home, you may be able to write off home equity loan interest on your tax return. Depending on your credit profile, you might be able to get a lower rate on a home equity loan than on an unsecured personal loan. Keep in mind 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 deafult on the loan, the bank may repossess your house to make good on your debt.
2. 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 loan.
Is using a credit card for home improvements right for you?
Most credit cards come with high, variable interest rates. So 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 for decades. 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.
> Pro Tip: If you’re struggling with overwhelming credit card debt, consider using a balance transfer personal loan to pay down your cards directly.
If your home remodeling project doesn’t need to start right away, and you want to avoid taking on new debt, saving up the cash ahead of time is a great way to go. It’s as easy as setting up a special savings account and funding it monthly. By not taking on new debt, you’ll conserve your available credit, and keep your debt-to-income ratio in check. Plus you won’t have to worry about interest payments, or loan closing fees adding to your overall costs.
The only drawback to paying in cash is that it will take some patience to save up the money. (At any point it may be tempting to drain your emergency savings account. So be sure to put some spending rules in place.)
Is using cash for home improvements right for you?
It depends on your current financial cash flow. If you choose to go the cash route, research how much your project will cost upfront and start saving well ahead of time. For instance, let’s say you’ve estimated $15,000 for a new roof and gutters and can afford to set aside $400 per month. It will take about 36 months (three years) before you will need to schedule a contractor.
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 not only help you affordably finance major home repairs and improvements, but other big-ticket items. Weddings, moving expenses, funeral costs, medical bills, and consolidating credit card debt are other reasons to consider a personal loan.
If a personal loan sounds like it might be a good fit for you, check your rate through LendingClub—with no impact to your credit score.1 Personal loans are available through LendingClub for as low as $1,000 all the way up to $40,000—and you could be approved in 24 hours and have the money in your bank account in as little as a few days.1,2
Still have questions? Some of these commonly asked questions may provide the answer.
1. What type of loan is best for home improvement projects?
If you prefer not to use your property as collateral, personal loans are 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.
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, low 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 makes it easy to check your rate in minutes — it’s free and won’t impact your credit score. Once approved, you’ll be able to review your loan amount, the interest rate, APR, monthly payment, and loan term. You’ll have to confirm your identity and a few other items such as your income and employment (don’t worry, we’ll help you through this). Finally, we’ll deposit the money directly into your bank account in as little as a few days.
1Of all personal loans approved through LendingClub between 1/1/19 – 3/31/19, 72 percent were approved within 24 hours.
2The 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.