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Understanding Home Improvement Loans for Your Home Rehab Project

Ideally, the home improvement loan that you take should help you to finance home renovations, simple or complete, and even new construction if you are planning on it easily. The ideal financing arrangement will include a low rate of interest, easy-to-comprehend terms, and good customer service. You need to decide what home improvements you want and how much they are likely to cost allowing for some cost overruns. Assuming that you do not have the cash stashed away in your bank, you will need to identify a source of funds. While credit cards and personal loans usually represent the easiest ways, they are typically the most expensive, so you could do well to find out more about cheaper sources of finance like home equity loans, home equity lines of credit, and home improvement loans. While home equity loans and home equity lines of credit have the disadvantage of putting your home at risk if you default, home improvement loans can often be more viable as there is no requirement of putting up the property as collateral. A hard look at home improvement loans:

Understanding Home Improvement Loans

In simple terms, home improvement loans are ordinary personal loans but meant for home improvement and rehab. Very much like home equity loans, they have a fixed rate of interest for the period of the loan, however, unlike home equity loans that have a repayment period of 15-30 years, home improvement personal loans need to be repaid within a much shorter term of three to five years. Home improvement loans can be both secured and unsecured; however, the unsecured home improvement loans are more popular because there is no need to offer collateral. However, lenders like to give the unsecured loans only to borrowers with a good credit score or compensate for the extra risk by hiking the rate of interest. If your income is stable but your credit score is not that good, you can consider offering some asset like a car to secure the loan and keep the APR down to a reasonable level.

Getting a Home Improvement Loan Is Simple 

The reason why home improvement personal loans are so popular is that they are conceptually and practically very simple. Lenders typically have a standard process for approval that calls for certain documents to be submitted by the borrower like proof of address and income, which along with the credit check is sufficient for the application to be evaluated and approved. Several reputed private lenders operating online who claim to disburse the loan is less than 30 minutes after the submission of the application.

According to, the interest rate is decided by the lender after factoring in your credit history, credit score, debt-to-income ratio, and monthly cash flow. The rate of interest of these loans can vary widely depending on the lending policies and risk assessment by individual lenders so it can be very helpful to shop around for the best terms. Making this process very easy is several lending platforms that bring together some of the more widely known lenders under one roof. You can apply with all your details on the platform and get the comparative offers instantaneously to help you to seal the deal. The best thing is that the inquiry does not have an impact on your credit score, as it is a soft inquiry.

You need to compare the loans only by the APR as some lenders can quote a very low rate of interest and charge additional fees that are quite high to make up for it, observes a compliance officer. In any case, you should be prepared to pay a origination fee of around 5-6% of the loan amount over and above the rate of interest, which means that if you do not have a very good credit score, the effective APR will be in double digits though still less than the APR of credit cards. The good news is that you do not have to reckon with the closing cost and a large number of other charges applicable to home equity loans that can reduce its appeal considerably.

The Downside of Home Improvement Loans 

Apart from the rate of interest that can be quite steep for borrowers with bad credit, the funds available using a home improvement personal loan is somewhat limited and may not be sufficient for a major home improvement and rehab project. Depending on your income, most lenders do not lend beyond $30,000, however, you may be able to get more by applying to some of the bigger lenders or banks if your credit score is good, however, the level of scrutiny of your application and credit will be more intense.

When Does a Personal Home Improvement Loan Make Sense? 

You can consider a personal home improvement loan if you are unwilling to link your home to the new loan as in the case of a home equity loan or a home equity line of credit. Most financial experts will recommend you to avoid this since using your home as collateral puts it to risk and in the case due to any event like a downturn or a loss of employment, you are unable to pay the monthly installments, you run the risk of losing your home due to foreclosure. A personal home improvement loan also makes sense if your credit score is really good, which means that you will be able to get a good rate of interest that will make the loan less expensive. A personal loan also makes great sense if the home improvement project is small and does not involve too much money as then you can avoid the paperwork that comes with normal home equity or HELOC application.


There are many ways of getting your home improvement project financed. The method you will want to choose will depend on the extent of the outlay because opting for finance that is linked to your home equity is a more complicated and slow process that a personal home improvement loan. For a small-sized home improvement project, it can be far more convenient to opt for a personal loan to take advantage of the speed of processing even though the rate of interest is higher.


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