Personal loans are flexible financial tools that give you money when you need it. You can apply for a personal loan for nearly any purpose.
One common reason to apply for a personal loan is to finance home improvement projects.
Home improvement can be expensive, so you might want to take out a loan to pay for it.
You might be tempted to consider a home equity line of credit (HELOC) or home equity loan. These can be good options, but a personal loan can also fit the bill because of how customizable they are.
If you have a home improvement project in mind, this article will cover the ways in which a personal loan can help you pay for it.
Best Personal Loans for Home Improvement Projects
You can find personal loans from a huge number of lenders, but some lenders offer a better deal than others. We think these lenders offer the best personal loans for home improvement projects.
SoFi
SoFi is an online lender that focuses on flexible, low-cost loans. You can borrow as little as $5,000 from SoFi, or as much as $100,000. That makes it easy to borrow exactly the amount you need to pay for your project, which makes it easier to avoid going over budget. SoFi also doesn’t charge any origination fees or early repayment fees, making their loans even cheaper.
If you’re worried about losing your job and being unable to make loan payments, SoFi offers some protection against that. If you lose your job, you can pause your loan payments.
Interest will continue to accrue, but if you stop making payments, it will not impact your credit. This can reduce some of the stress of taking on a loan.
SoFi Personal Loans Pros & Cons
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Earnest
Earnest is another online personal lender. It touts its ability to more accurately gauge the risk of borrowers when compared to other lenders. This means that Earnest can approve loans that other lenders won’t. It also allows Earnest to charge lower interest rates than other lenders do.
Earnest is able to gauge its risk so well by looking at more than just your credit score. Earnest will look at your saving patterns, investments, and career trajectory. If you have mediocre credit, but a lot of promise, Earnest might be able to offer you a loan when other lenders won’t.
Earnest offers loans ranging from $5,000 to $75,000. It does not charge origination fees, early repayment fees, or other hidden fees.
Earnest Personal Loans Pros & Cons
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Lending Club
Lending Club is a peer-to-peer lending website that offers personal loans to borrowers. Peer-to-peer lending sites do not loan money directly to borrowers. Instead, peer-to-peer lending sites connect potential borrowers with people who want to invest in personal loans.
When you apply for a loan from Lending Club, the anonymized details of your loan are posted for investors to see. Investors can look at your loan and decide if they want to help fund it. Investors can contribute as little as $25 or as much as the full amount you’d like to borrow.
Once your loan is funded, you’ll get the money that you need. When you make monthly payments, your payment is split between the people who helped to fund your loan.
Lending Club offers loans to people with very poor credit as a way to give its lenders an option for a high-risk, high-reward investment. If you’re having trouble getting a loan from a traditional lender, Lending Club might be able to help.
Lending Club Personal Loans Pros & Cons
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Why to Consider a Personal Loan Over a Home Equity Loan or HELOC
There are a few reasons to get a personal loan to fund improvement instead of using a HELOC or home equity loan.
No collateral required
One benefit of a personal loan is that you don’t have to provide collateral.
With a HELOC or home equity loan, your home serves as collateral. If you start missing payments, your home could be repossessed.
Avoiding the need to offer collateral reduces your risk.
Faster to get, less paperwork
HELOCs and home equity loans require a lot of paperwork to open.
Personal loans are much easier to apply for, and you can get the money you need in days.
If you want to get started on your project sooner rather than later, a personal loan can get you the money you need quickly.
Longer repayment term
Some personal lenders offer loans with a long repayment term.
This can make it easier to find a monthly payment that you can manage, even if you’re borrowing a lot. HELOCs and home equity loans can be more restrictive when it comes to repayment terms.
Just remember that longer repayment terms result in higher total loan costs.
How to Choose a Personal Loan for Home Improvement
When you’re comparing personal loans to work on home improvement, you should mostly compare these three things.
Interest rates
The interest rate on any loan is one of the most important things to take note of. A loan’s interest rate will determine both the total cost of the loan and the size of your monthly payments. All else equal, you should look for the loan with the lowest interest.
Your credit score can have a significant effect on the interest rate of the loans you’ll be approved for, so try to boost your score as much as you can before applying for a loan.
Loan terms and borrowing limits
If you need to borrow money to fund a home improvement project there’s not much point in borrowing less than you actually need
All you’ll have is an unfinished project and no money to finish the project with. Make sure that you can get a loan that is large enough to pay for the whole project.
Also, see what kind of loan terms the lender offers. Longer terms loans have lower monthly payments, but cost more in total.
Go with a lender that offers a loan with a long enough term that you can handle the monthly payment.
Fees
Many personal loans charge origination fees, which are added to the balance at the start of the loan.
This and other fees will add to the total cost of your loan. Try to find a lender who charges no or low fees.
Common Personal Loan Fees
| Type of fee | Typical cost |
|---|---|
| Application fee | $25 to $50 |
| Origination fee | 1% to 6% of the loan amount |
| Prepayment penalty | 2% to 5% of the loan amount |
| Late payment fee | $25 to $50 or 3% to 5% of monthly payment |
| Returned check fee | $20 to $50 |
| Payment protection insurance | 1% of the loan amount |
Can You Deduct Interest Paid to Finance Home Improvement?
There are situations in which you can deduct the interest you pay on home improvement loans, but you cannot deduct the interest on a personal loan, even if it is used to finance home improvement.
For a home improvement loans’ interest to be deductible, it must be secured by the home being improved.
How to Increase Your Chances of Approval
There are a few ways that you can improve your chances of getting approved for a personal loan to fund a home improvement project.
Increase your credit score
The biggest factor in your application’s approval is likely to be your credit score. Your credit score is a numerical representation of your financial trustworthiness in the eyes of lenders.
Your credit score is a numerical representation of your financial trustworthiness in the eyes of lenders.
The most important factor in your credit score is your payment history. The second most important factor is the amount of money that you owe.
Unfortunately, your payment history is the hardest factor to improve. You’ll need to make on-time payments on your debts over the course of months and years to improve it. A single missed payment can have a big effect on your credit score.
In the short term, you can give your score a small boost by:
- Paying down existing loan balances
- Avoid using your credit cards in the lead up to your application
- Don’t apply for other loans before applying for an important loan
Lenders that consider more than just credit scores
Nearly every lender will look at your credit score when making a lending decision.
However, some lenders will look at more than just your credit score. If you have poor credit but have a way to show that you’re working to improve your finances, look for this type of lender. They might be able to offer a loan where other lenders won’t.
If you have poor credit but have a way to show that you’re working to improve your finances, look for this type of lender. They might be able to offer a loan where other lenders won’t.
Autopay for a rate discount
Many of the lenders that offer personal loans are banks. Banks like to create long-term customer relationships, so they often offer relationship discounts on loans.
One common type of discount is the automatic payment discount.
If you get a personal loan from a bank that you have a checking account at, you can save as much as 0.25% off the interest rate of the loan by signing up for automatic payments.
Conclusion
Home improvement projects can get expensive very quickly. If you need help paying for home improvement, a personal loan can be a quick way to get the money that you need.
If you need help paying for home improvement, a personal loan can be a quick way to get the money that you need.
Source
https://www.mybanktracker.com/personal-loans/reviews/best-personal-loans-home-improvement%2F-277418
