What are Home Improvement Loans?

Our guide on home-improvement financing and why personal loans can be a great choice.

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By Ben Harper

Best Personal Loans Options for Home-Improvement

Lending Partner APR Loan Amount
Upstart Personal Loans by SimpleDirect 9.99 - 35.99% $1k - $35k Apply Now
Avant Personal Loans by SimpleDirect 9.99 - 35.99% $2k - $35k Apply Now
SoFi Personal Loans by SimpleDirect 5.99 - 16.19% $5k - $100k Apply Now
Prosper Personal Loans by SimpleDirect 7.95 - 35.99% $1k - $35k Apply Now

All you Need to Know about Home Improvement Loans

Homeowners pay an average of 1% of their home’s value in home maintenance annually and that doesn’t include home improvements.

Fixing up a home, whether a complete remodel or small cosmetic changes, can cost thousands of dollars. If you don’t have the money lying around you may look for the best home improvement loans.

Not sure what to look for? Check out this guide on everything you need to know about home repair loans.

Home Improvement Loans: What Are Home-Improvement Loans
Home Improvement Loans

What are Home Improvement Loans?

You have options when you need a home improvement loan.

Secured Home Improvement Loans

The most common are secured home improvement loans. You can secure a home equity loan or home equity line of credit using your home as collateral.

Home Equity Loan

If you take out a home equity loan, you receive the loan funds in one lump sum and pay principal and interest each month. The loan has a fixed term, usually 5 – 20 years, and you have a fixed payment each month. The interest may be fixed or variable.

Home Equity Line of Credit

A home equity line of credit works more like a credit card. You get a line of credit that you can draw from as needed. It’s great for open-ended projects or large home remodelling projects that will be ongoing.

You’re obligated to pay interest on the funds you withdraw, but that’s it. You can pay back the principal, but it’s not required until the end of the draw period, which is usually after 10 years. After the draw period, you pay principal and interest for the next 20 years, and can’t draw from the line any longer.

Unsecured Home Improvement Loan

An unsecured home improvement loan is another option. Because there’s no collateral, you may pay higher interest rates and/or fees to make up for the risk, but you don’t have to risk your home.

Reasons to Use Unsecured Home Improvement Loans

Home repair loans are great for obvious things, such as major unexpected repairs.

You have a hole in your roof, your plumbing leaks, or you need your electric rewired. If you don’t have the funds set aside, you may need a home improvement loan to fund it.

Best Unsecured Home-Improvement Financing Options

Lending Partner APR Loan Amount
Upstart Personal Loans by SimpleDirect 9.99 - 35.99% $1k - $35k Apply Now
Avant Personal Loans by SimpleDirect 9.99 - 35.99% $2k - $35k Apply Now
SoFi Personal Loans by SimpleDirect 5.99 - 16.19% $5k - $100k Apply Now
Prosper Personal Loans by SimpleDirect 7.95 - 35.99% $1k - $35k Apply Now

Besides sudden and unexpected repairs, remodelling loans are great for:

  • Remodeling a bathroom or kitchen
  • Adding a bedroom
  • Finishing the basement
  • Replacing the roof
  • Foundation repairs
  • Cosmetic upgrades/repairs

Pros and Cons

Before you take out a home improvement loan, understand the pros and cons.

Pros:

  • Most home improvement loans have lower interest rates than traditional mortgage products
  • Investing in your home can result in a great return on your investment
  • If you use your home as collateral, you’ll secure the best terms
  • Paying your loan on time can help your credit score
  • You may be able to deduct some of the expenses on your taxes

Cons:

  • Defaulting on your loan could result in foreclosure
  • Not making your payments on time can hurt your credit
  • Some lenders require great credit

What Do I Need to Qualify for a Personal Loan for Home Improvement?

If you are looking to get a personal loan for home-improvement purposes, many lenders offer a simple and fast pre-qualification process that does not impact your credit scores.

To see if you can pre-qualify for the lender's offer, you just need to answer a few questions that usually includes your annual income and your address. After answering a few questions, the personal loan lenders will give you rates for your home-improvement project.

Does Personal Loan for Home Improvement Has Pre-Payment Penalties?

Many personal loan lenders lending renovation or home-improvement loans do not have any pre-payment penalties. This information is usually available on the lender's website.

Use SimpleDirect to Pre-Qualify for Your Renovation & Home-Improvement Needs

SimpleDirect has partnered with many top-rated lending partners in the US, and can give you instant options without impacting your credit score.

Alternatives to Home Improvement Loans

If you don’t qualify for a home improvement loan or don’t want one, you have a few options:

Credit card

If you have or are eligible for a rewards credit card, you can earn some nice cash-back on your purchase. This works well if the repairs/improvements aren’t too expensive and you can pay the balance off fast.

Cash-out refinance

You can refinance your first mortgage, tapping into your home’s equity. Today’s low interest rates make this an affordable option, but you need good credit to qualify.

Savings

If you have savings, you may tap into it, using the funds to invest back in your home. You should see a decent return on your investment, which may be worth more than the interest you’d earn in a savings account.

Check out the best home improvement loans available to you based on your credit and qualifying factors. If you can put up collateral, you’ll get the lowest rates and the best terms. If you can’t, there are still plenty of affordable options, allowing you to improve your home’s value and see a nice rate of return on your investment.

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Ben Harper

Ben is a personal finance writer with SimpleDirect, where he focuses on topics such as personal loans, credit cards, and offering financing.

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Best personal loan options

Lending PartnerAPRLoan Amount
Upstart Personal Loans by SimpleDirect9.99 - 35.99%$1k - $35kApply Now
Avant Personal Loans by SimpleDirect9.99 - 35.99%$2k - $35kApply Now
Sofi Personal Loans by SimpleDirect5.99 - 16.19%$5k - $100kApply Now
Prosper Personal Loans by SimpleDirect7.95 - 35.99%$1k - $35kApply Now

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