A home improvement loan (also known as a home renovation loan) is a personal loan that provides funds to improve your home. They work like personal loans, except that they are available to banks, credit unions and online lenders, and the funds can only be used for renovation costs.
Flexible and fast home improvement loans are a great option for some home projects, but not the only option for financing. Most home improvement loan lenders need good or good credit to qualify. Home equity products usually offer lower fees as they are protected at home. Of course, paying for a home renovation from savings is another option.
Pros and cons of personal loans for home improvement
Home improvement loans can help you start projects around your home, even if you don’t have one in your hand to cover cash on hand. However, like any other loan, you need to manage it responsibly. Otherwise, you could damage your finances and credit scores.
Taking away your home improvement loan will help you get started with big projects right away. If your project needs to improve your quality of life and safety and change happen sooner than later, that’s important. It can also be a great way to add value to your home.
Installment loans such as personal and home equity loans can be paid back with a set of payments, making it easier to repay than spinning debts such as credit cards. Additionally, personal loans have a fixed interest rate, which is usually lower than the variable rates found on credit cards. Initially, taking out a home improvement loan can lead to a lower credit score as your credit utilization rate increases. However, if you make your loan payments on time, your home improvement loan can improve your credit score.
Fees and interest can make home improvement loans more expensive, with APRs as much as 36% of borrowers with low credit scores. Most personal loans are not protected, but your Home Equity Loan or Home Equity Credit Line (HELOC) is protected by your property. If you default on a secured loan, you could lose your home.
Should I use a personal loan to improve my home?
Personal loans are a fast, relatively inexpensive and low-risk option for paying for improved households. Because of its fast funding, it is a good option for emergency repairs such as storm damage and burst pipes. This is especially true when you have a quote from the company and know exactly you need to complete improvements and borrow.
Personal loans, on the other hand, can be expensive for people with little or no credit, and increase the debt load. Personal loans may not be the best option if the project is ongoing, how much it costs, or if you qualify for a cheap borrowing option.
When to get a personal loan to improve your home
- Emergency repairs need to be covered quickly. Some lenders can approve unsecured personal loans in minutes and may provide simultaneous or next day funding.
- You don’t want to make collateral. Most home improvement loans are unsecured, so if you are late in repayment, there is no risk of losing your assets.
- Funding short-term projects with budgets. A home improvement loan will fund a one-time lump sum. If you know exactly how much you need to borrow, a personal loan can help you stick to your budget without taking out more than you need.
Best Home Improvement Loans of 2025
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If you do not get a personal loan for home improvements
- You have bad faith. Defective credit loans are available, but they have high fees and disadvantages.
- You are juggling multiple other big debts. The lender will consider DTI when evaluating the loan and will likely increase your fee. Consider whether taking away another loan could overexpand your finances. If your home improvement project is open, focus on paying off your debts before applying.
- You don’t know how much you need to borrow. A home improvement loan offers a certain amount. If you need more money than you expect, you will need to take out another loan or rely on other borrowing options for more money. Credit cards or HELOCs may provide more flexibility than ongoing projects.
- You’re expensive Home Equity. Home equity loans and HELOCs tend to earn lower fees than unsecured debts like personal loans. You can usually rent up to 85% of the available home equity.
Other ways to fund housing improvement projects
A home improvement loan is not the only way to fund a home improvement project.
Home Equity Loan
Just like personal loans, home equity loans are paid out as lump sums and repaid in a series of fixed installments. The difference is that your household equity loan is protected by your home, resulting in a lower rate. However, this means that you could lose your home with the default on a loan. Closure costs are also high, potentially 2-5% of the loan amount.
helic
Home Equity Credit Line is a line of revolving credits that allows you to withdraw money if necessary. It’s similar to a credit card. HELOC comes with variable interest rates that fluctuate in the market, but during the period of implementation (if it could be 10 years), you may be expected to pay only interest rates. Like a home equity loan, HELOC is protected in your home and can include high closure costs.
Cash-out refinance
With cash-out refinance, you will use the difference to pay for the difference in your home improvement project, taking out a new mortgage for more than you owe your home. Closure costs can be higher and new mortgages have new interest rates, so this option doesn’t make sense to have a higher interest rate than when you originally took out your mortgage.
Title I Property Improvement Loan
Title I Real Estate Improvement Loans are government loans guaranteed by the Federal Housing Administration (FHA). Designed for home improvements, renovations and repairs. It’s a good option for homeowners with low to moderate incomes, but the maximum borrowing amount is $25,000 for single-family homes, which is lower compared to other borrowing options. Additionally, larger loan amounts may be secured by the property, and not all home improvement projects qualify.
Credit Card
Credit cards are usually an expensive way to cover big purchases, as interest rates are usually much higher than other funding options. However, if you have a large credit, you may be eligible for a 0% APR introductory period card. Depending on your card, the promotion period may be 21 months.
If you are confident you can repay your balance before the promotion period ends, a credit card is an interest-free way to borrow money. However, be careful. The balance remaining when the introductory period expires will be subject to interest, which could lead to higher interest rates on your credit card. (And if you have a card that charges deferred interest, you may be on the hook for all the interest that would have been incurred during the promotion period.)
Save money
The cheapest way to cover a home improvement project is to use savings. Avoid interest and fees, do not increase the debt load and will not affect your credit.
Of course, you may not have the time to save on expensive projects. Also, if you are allocated for a different cost, you may not want to drain your savings. You also miss out on making profits if you are spending your savings.
Conclusion
Whenever you borrow, it is important to consider the impact of taking on debt on your financial well-being. Look closely at your finances and decide if now is the right time to complete your project, and whether borrowing is the right way to pay it.
If you decide time is right, a home improvement loan is far from your only option, but it can be a big borrowing option. Make sure the options you choose are comfortable with your budget and make repayments easier.
