Personal Loans for Home Improvements

Written by Dennis

Are you thinking of doing a home makeover? Whether it is replacing a leaky roof, remodeling the bathroom, finishing the basement, or adding energy-saving solar panels. However, home improvement projects are usually expensive. Therefore, you need outside financing.

The first instinct of a homeowner is to secure a home equity loan or credit line when they need funds for a project to upgrade their house. But in many situations, a personal loan is a safer option, given its higher interest rate.

In this guide, we discuss personal loans and why you need to consider it for home improvements.

What is Personal Loan?

Personal loans are short-term loans that borrowers can get from banks, credit unions or private lenders, such as non-bank peer-to-peer lenders and online marketplace lenders. Many people take out personal loans to pay off certain loans, funding a home renovation or paying for family needs, such as a wedding or adoption.

If you are approved, you will get your money in one lump sum. Then, you simply require to pay it back plus interest. The loan is repaid over several years. Most personal loans range from 3 years to 6 years, but some can go as high as 7 years. The personal loan, equivalent to a car loan or home mortgage, is repaid in monthly installments.

Personal loans are unsecured, meaning they are offered with no collateral attached such as a car, house or other assets. Instead, they depend on factors such as employment history and creditworthiness. If you need cash quickly, these loans are an excellent choice because the approval process is relatively fast and you will also get your lump sum faster than other loans. Therefore, it provides flexibility to its consumers.

Primary Types of Personal Loans

1. Standard Personal Loans

Banks and credit unions have been providing personal loans for a long time. Also, you can apply in person or online and get funds directly in your account.

2. Online Personal Loans

They mostly include peer-to-peer (P2P) sites and marketplace lenders. They provide loans from investors and financial institutions. Such services often use credit score models, and the application process is quite simple.

Current Interest Rates

As of March 25, 2020, the average interest rate on personal loans is 11.45%. Currently, personal loan rates vary from around 5% to 36%, depending on the credit score. The higher your credit score, the more likely you’ll be to qualify for a personal loan with the lowest available interest rate.

With the credit rating, you can see what you are eligible for before applying for a personal loan.

Why Should You Consider Personal Loans for Home Improvements?

1. Your Home is less at Risk

When your home equity loan or HELOC cannot be repaid, your lender can potentially foreclose because your home secures such loans. With an unsecured personal loan, the stakes are lower. Although unsecured creditors can put a lien on your home if you don’t pay them, something many customers don’t know about. However, the lien typically just makes it more difficult to sell or refinance. You will not take a big loss such as foreclosure will unless the judge gives a writ of execution to the creditor to force the sale of your property, which is unlikely.

To put it another way, default on any loan is never the right choice. An unsecured personal loan, however, maybe a lower risk option if you are financially stable but faced with uncertainty, such as possible layoffs at work or education for a child that might not be covered by a scholarship.

If you’re sure to see financial problems ahead, put your plans for home renovation on hold until the storm passes. Therefore, not adding further monthly payments to your burden.

2. You will pay less in Interest

Although home equity loans and HELOCs indeed appear to have lower interest rates than personal loans, which does not necessarily mean you are going to pay less interest over the loan’s lifespan. That is because the term (or duration) of the loan’s payment also affects the amount of interest paid— the longer the period, the more interest you will pay.

So even though the loan has a lower interest rate, paying low interest for a more extended period may be equivalent to more interest charged in total than a loan with a higher interest rate over a shorter period of duration.

Personal loans usually vary from 3-7 years in terms of the repayment periods. Home equity loans appear to last 5-15 years, while HELOCs takes 5-10 years in terms of the repayment period. Terms vary according to the lender.

Consider this scenario; you need to borrow $50,000 to renovate your kitchen. Let us say you took out a personal loan, and paid interest of 10% for 3 years; you would pay $8000 in interest over loan’s lifespan. Now let us say you took out a home equity loan, and paid 5% interest for 10 years, you would pay an interest of $13,500. Often the shorter period for repayment beats a much lower rate of interest. Only make sure that you can handle the larger monthly installments that will come with a shorter period of repayment.

3. Continue Borrowing in Check

When your loan is approved, a personal loan amount is fixed, unlike a HELOC which allows you to continue borrowing for the entire 10 year draw period. Also, a home equity loan locks your loan amount. However, HELOCs and home equity loans require you to borrow a minimum of $10,000 at closing. In addition, there may be minimums for additional draws on a HELOC. The minimum amount you are expected to borrow for a personal loan is smaller. This makes them a popular choice for low-cost home renovations, such as new floors or appliances for heating and air conditioning. The minimum amount varies by lender.

However, often longer-term personal loans have minimum borrowing requirements close to those of home equity loans and HELOCs, so search around and check out the fine print.

4. Fast Loans

Applications for personal loans are quick to process. You can get your money in a matter of days, sometimes. Requirements for a home equity loan or HELOC take longer; there is further research to be done, such as determining your home’s current market value.

Pros and Cons of Personal Loans


  • Single lump sum – often with a fixed interest rate that aids in the tracking of monthly payments.
  • Receive cash quickly – sometimes you get your money within as little as a day, depending on your lender.
  • Interest rates are much lower compared to others, such as payday loans.
  • They give you a reasonable amount of time to pay back.
  • They are unsecured loans – which means they are offered with no collateral attached, such as a car or home.


  • If you have a poor credit score, you might not qualify.
  • You are adding further monthly payments to your burden.
  • Some lenders do not offer co-signers; therefore, you only use credit score and employment history to qualify.
  • They are higher compared to several secured loans.


A personal loan can be a valuable financial resource when you need funds for home improvement. Nevertheless, when you take out a personal loan, it is essential to understand exactly what you agree to. So according to the deal with the lender, you need to have a strong plan to repay the loan.


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