Graham Smith
Written by Graham Smith
Last updated: May.11,2022

Sometimes finding the money to pay for a home improvement project can be difficult. If you find yourself in a situation like this, it could be a good idea to approach a bank or a financial institution for a personal loan. 

A personal loan can be the perfect way to finance your home improvement. But before we go into the merits of this type of finance, let' s take a minute to discuss what we mean by "home improvement".

What is a home improvement project?

Of course, the activities listed above could require you to spend a good sum of money. If you have enough cash in your bank, you can start making your home improvements right away. But if not, a personal loan can provide you with the funds you need.

Reason to get a personal loan

Personal loans are granted to individuals by banks, credit unions, and lenders specializing in online loans. Getting access to the money usually involves completing an approval process and submitting some documents.

One of the biggest advantages of a personal loan is that you can use the money practically any way you want. 

However, some lenders do place certain restrictions on fund usage. For example, lenders prohibit gambling and illegal activities with personal loan funds. Additionally, many financial institutions say that personal loan money isn' t intended to make the down payment on a home or pay college tuition. 

But you can go right ahead and use the cash you get from a personal loan for home improvement. Pretty much every lender that provides personal loans allows you to do that.

Is using a personal loan for home improvements a good idea?

Many lenders offer personal loans. So, you can shop around and pick the loan that best meets your needs. When you' re looking for a personal loan to finance your home improvement, keep the following things in mind:

  1. 1. Interest rates

The personal loan interest rate you pay can vary widely. Some lenders like Lightstream offer APRs as low as 3.49 percent. At the upper end of the range, you could pay an APR of as much as 400 percent on some payday loans, which is a type of personal loan for people with bad credit. 

A word of advice here - stay away from bad credit loans and lenders that offer personal loans for bad credit if you can. Their interest rates can be sky-high.

When comparing loans, be sure to take a close look at the APR that each lender is charging you. It' s a good thumb rule to select the loan with the lowest APR. 

  1. 2. Some lenders can provide personal loan funds within a day

Say, you need to repair or replace your furnace or other built-in heating equipment. The contractor tells you that it will cost $4,000. You can' t afford to wait weeks to get a loan approved - what you need is a financial institution that provides quick loans.

The good news is that it' s possible to find a lender who offers next-day funding. For example, online lender Avant has an application form that takes only a few minutes to complete. And your personal loan funds can be in your bank account on the next business day after your loan is approved. 

It' s almost like getting an instant loan!

  1. 3. Most personal loans are unsecured

There' s an important difference between secured and unsecured loans. With the former, you must provide the lender with some security, say, your house or car. If you can' t repay the loan, the lender has the right to seize your property to recover its money.

An unsecured loan, on the other hand, has no such condition. The lender offers funds based on the creditworthiness of the borrower. You don' t need to provide any collateral or assets as security. 

Thankfully, most personal loans are of the unsecured type.

How much you need to borrow for home improvement loan?

Some home improvements cost relatively little. Others can set you back by tens of thousands of dollars. 

Let' s say you want to carry out some painting work. That could cost as little as $2,000. But a kitchen remodel could cost $35,000 or more. Here' s a chart that shows the average cost of home improvement projects in 2020.

Average cost of top home service projects in the United States in 2020

Source: Statista

Personal loans are an excellent fit for raising money for home improvements. You can borrow exactly as much as you need. Avant offers personal loan amounts starting from $2,000. If you need a larger sum, Lightstream can provide personal loans up to $100,000.

It gets better.

Not only does a personal loan allow you to borrow the precise sum you need, you can also choose a loan term that works for you. Lightstream offers loan terms up to 144 months (for loans more than $24,999). 

You can use this handy Personal Loan Calculator to work out the monthly payment for different loan amounts, interest rates, and loan terms. 

When to consider before using a personal loan for home improvement?

Using a personal loan when you need money for home improvement has plenty of positives. However, there are some downsides, too:

  • Don' t borrow more than you need

It can be easy to get approved for a personal loan. It' s so easy that some people borrow more than they need. Don' t do that. Your loan should be for the sum you need and not the amount the financial institution is willing to lend you.

Remember that every dollar you borrow has to be paid back with interest. 

  • Read the fine print

Check the loan conditions carefully before signing on the dotted line. A lender could require you to pay a penalty if you delay payments. There could be other fees too. 

So, make sure you know what you' re getting into before you agree to take the loan.

  • Delaying payments could affect your credit score

If you delay your personal loan repayment, it could have a negative impact on your credit score. This, in turn, could lower your ability to borrow in the future and may even increase the interest rate you will be charged. 

The bottom line

You can start work on your home improvement even if you' re short of funds. It' s possible to get a low-cost personal loan for the amount you need in a matter of days. 

But take your time choosing a lender. 

Shop around and find the best possible deal. There are plenty of financial institutions offering personal loans, and if you' re patient, you can find a lender who is the perfect match for your needs.

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