Loans For Home Improvement Projects – Tackling a home improvement project can be expensive, but with competitive rates and terms, a personal loan can give you a home to come home to. (iStock)
Home improvement projects can make a home a home. By updating the bathroom or kitchen, replacing the windows, or changing the flooring in the living room, you give your home a distinctive touch and add value.
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But these repairs can also come with a high price tag, making it difficult for most people to shell out cash for upgrades to their home. There are many reasons to take a personal loan, but this is one of the most popular — and can be very useful.
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Personal loans are financed by financial institutions — banks, credit unions, or online lenders and can be used for renovations, repairs, and additions to your home. This loan is repaid in fixed monthly payments over a predetermined period of time. Personal loans are usually unsecured, meaning you don’t need collateral to qualify.
If you have good credit, personal loans generally have competitive rates and terms, which can be much lower than credit cards. To see what rates qualify for today, simply enter your desired loan amount and estimated credit score into Credible’s free online tool.
Interest rates can range from as low as 6% to 36%, according to Experian. For the first quarter of 2020, the 24-month personal loan interest rate was 9.63%, reported by the Federal Reserve. In comparison, the average credit card interest rate is 16.61%.
Personal loans don’t require collateral, but they often come with higher interest rates, which depend in part on your credit score. Personal loans offer other benefits:
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It’s often easier and quicker to get financing for a personal loan. You can usually prequalify at your bank or credit union or through an online marketplace such as Credible. Credible can help you compare several personal loan lenders at once to make sure you find the best offer.
Prequalification will give you a good idea of how much you will qualify for. It also gives lenders an idea of your creditworthiness when determining the best interest rate. It’s a good idea to compare stores on a site like Credible to understand how much you qualify for and choose the best option for your particular project.
Personal loans have a fixed term, usually one to seven years, which can be helpful when budgeting your monthly payments. Short term will also save on interest paid over the term of your loan. In contrast, home equity loans have a longer term, usually five to 20 years on average.
To find out the number of personal loans you may qualify for, see Credible’s personal loan calculator.
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When deciding which type of loan is best, it’s a good idea to compare shops on loan sites like Credible. Once you know how much you qualify, you can choose the best option for your particular project. Also keep in mind that some lenders offer discounts to improve the energy efficiency of your home.
By mid-August, one in 10 Americans couldn’t find a job, and many people found themselves strapped for cash. Even so, the home project is growing in line with the implementation of the stay at home order which was triggered by COVID-19. In a Bank of America poll of 1,054 Americans, more than 70% of people cooped up at home during the coronavirus pandemic decided to take on a repair project.
Personal loans have no security deposit, are relatively easy to obtain, and require no collateral. But due to restrictions with COVID-19, many lenders are limiting who is approved for loans.
Instead of a personal loan, some borrowers may turn to cash refinancing for home improvements. A cash refinance is a new loan that replaces your current mortgage. The cash payment is the difference between the outstanding balance on your mortgage and the value of the home. That difference is what you can spend on your home improvement.
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The only drawback is that you must have equity built into your home to qualify. You will most likely pay closing costs, and since your home is being used as collateral, you run the risk of foreclosure if you miss a loan payment.
A 0% interest credit card is a good choice when your renovation project is smaller–up to $10,000–and you plan to repay the loan quickly. If your renovation is major, such as adding to a garage or remodeling your basement, a home equity loan makes more sense from a tax perspective. Keep in mind that 0% interest on credit cards is often only for a limited time, so it’s best to pay off your loan before the promotional period ends.
Visit an online marketplace like Credible to see lots of zero percent credit card options all in one place.
A secured home improvement loan, which is basically a home equity loan or second mortgage, uses your home as collateral. You can often get a higher loan amount with a fixed interest rate and long payments. These loans are also usually tax deductible. However, because your home is being used as collateral, if you default on the loan, your lender can foreclose on your home.
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There are also unsecured home improvement loans that do not use collateral. Interest rates tend to be higher and loan amounts smaller because of the risk for the lender. Unlike a secured loan, interest on an unsecured loan is not tax deductible.
When you apply for a home equity loan, you are borrowing a portion – usually 80% to 90% at most – of the value of your home. If you don’t have enough equity in your home, a home equity loan is not an option. Although interest rates tend to be lower than personal loans, the terms of the loan are repaid over a longer period of time, often one to 15 years. So over the term of your loan, you may actually pay more in interest than with a short-term personal loan that comes with higher interest. How much you qualify for depends on the age of the home, condition, location, and other factors.
HELOC can be withdrawn at any time, like a credit card, and are paid off over a long period of time, usually up to 10 years. During that time, you can use some or all of the loan funds. Like a home equity loan, how much of the money you get comes from the equity in your home. Because you make interest-only payments during the draw period and pay back the principal later, HELOC can be a good choice if you plan to sell in the future. HELOC has variable rates that can go up or down, but they give you flexibility when you’re not sure how much it will cost to remodel or renovate in total.
Home equity and HELOC loans are secured by the equity in your home and can be great options for expensive projects. But if you default, your lender can close.
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When your roof needs replacing, visit an online marketplace like Credible for all your loan options.
And, when you’re ready to turn your home into your dream home, but you’re not sure how to navigate the process during the coronavirus pandemic, assess your personal financial situation, then turn to Credible for the best personal loans for 2020. Written by Heidi Rivera Written by Heidi RiveraArrow Right Writer, Personal Loans Heidi Rivera is a personal finance writer and reporter for . His areas of expertise include personal loans, student loans and debt consolidation, in addition to data collection and analysis. Connect with Heidi Rivera on Twitter Twitter Connect with Heidi Rivera on LinkedIn Linkedin Contact Heidi Rivera via Email Email Heidi Rivera
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