Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as "Credible" below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders, all opinions are our own.
Home improvement loans are one way to fund home projects or repairs without using your property as collateral to secure the debt. (iStock)
Your home is one of the biggest purchases you’ll ever make, and where you’ll spend the bulk of your time outside of work. Eventually, you may reach a point where you want, or even need, to start making improvements to your property, either to improve its function for your family or create the home of your dreams.
But dreams don’t come cheap when you’re looking to transform your house with a home improvement or two. In fact, even a minor kitchen remodel costs more than $26,000 on average, and just putting in a new deck can easily run over $16,500. So, how do you foot the bill for these improvements?
Luckily, there are a few good ways to fund a home improvement if you don’t have the cash on hand. Even better: Some of them don’t require you to tap into your home equity.
What is a home improvement loan?
A home improvement loan — which is essentially a personal loan that you take out to fund your home improvement project — can provide the financing needed for a repair or a project that will increase a home’s value.
Unlike many other types of loans (which we’ll get into later on), a home improvement personal loan is typically unsecured and is not generally tied to your home’s equity. This means that you don’t have to use your property as collateral for the loan.
How do home improvement loans work?
A home improvement loan works like most other personal loans. Whether or not you’re approved — and the loan limit, rates, and terms you receive — will generally hinge on your credit health.
To take out a home improvement loan, you’ll need to apply through the lender of your choosing. In some cases, you may want to check rates from multiple lenders at once. Credible can help you compare rates on home improvement loans.
Your application will ask for some personal and financial information, which your potential new lender will use to check your credit and make a loan decision. If you’re approved, you’ll be offered certain loan repayment terms. The loan period, monthly payments, and interest rates may vary widely based on your credit history, requested loan amount, and even factors like your current income.
Best home improvement loans
Here are eight lenders that you may want to consider if you’re looking for the best home improvements loans this year. Credible evaluates personal loan lenders by looking at eight different data points, including the lender’s minimum fixed rate, available term lengths, fees, discounts, customer experience, time to fund, maximum loan amounts, and other factors.
The following four lenders are Credible lending partners.
Axos
Loan terms: One to five years
Loan amounts: Up to $35,000
Origination fee: 0% to 2%
Other fees: $15 late payment fee
Time to fund: Next business day
Best for: Quick funding and low rates for applicants with excellent credit
BestEgg
Loan terms: Three to five years
Loan amounts: Up to $35,000
Origination fee: 0.99% to 5.99%
Other fees: $15 late payment fee, $7 check processing fee, $15 unsuccessful payment fee
Time to fund: One to three business days after verification
Best for: Competitive rates and higher loan amounts
Discover
Loan terms: Three to seven years
Loan amounts: Up to $35,000
Origination fee: None
Other fees: $39 late payment fee
Time to fund: As soon as the next business day
Best for: Long loan terms and no origination fees
PenFed
Loan terms: One to five years
Loan amounts: Up to $35,000
Origination fee: None
Other fees: $29 late payment fee
Time to fund: Typically two business days after verification
Best for: Smaller loans for borrowers in all 50 states
The following lenders do not partner with Credible.
PNC Bank
Loan terms: Six months to five years
Loan amounts: Up to $35,000
Origination fee: None
Other fees: Late payment fee is $40 or 10% of the amount owed, whichever is greater
Time to fund: One to three business days from verification
Best for: Joint borrowers
U.S. Bank
Loan terms: One to five years
Loan amounts: Up to $50,000
Origination fee: None
Other fees: None
Time to fund: One business day
Best for: Current U.S. Bank customers seeking higher loan limits
SunTrust Bank
Loan terms: Two to 12 years
Loan amounts: Up to $100,000
Origination fee: None
Other fees: None
Time to fund: Same-day in some cases
Best for: Immediate funding, large loans, and long repayment periods
TD Bank
Loan terms: Three to five years
Loan amounts: Up to $50,000
Origination fee: None
Other fees: Late fee of $10 or 5% of the minimum payment amount due, whichever is less
Time to fund: Next business day
Best for: Competitive rates and no fees
Methodology
Credible evaluates loan and lender data in seven categories. Data points considered include interest rates, fees, repayment terms, discounts, eligibility requirements, minimum down payment, and customer service.
Because lenders have their own systems for evaluating borrowers, your unique circumstances and the loan features that are most important to you will determine which loan or lender is best for you, and the interest rate and terms you can qualify for.
The pros and cons of home improvement loans
Like any other financial product, there are both benefits and downsides to taking out an unsecured home improvement loan for your next project.
Pros
- They won’t put your home at risk. Because you generally don’t need to put up any collateral for a home improvement loan (such as your property’s equity), a home improvement loan can be a safer borrowing option than a home equity loan.
- They can help you increase your home’s value. You can use home renovation loans for any number of projects and improvements, from home repairs and remodels to putting in a new pool. These improvements and repairs, once finished, can increase your home’s value or boost its resale value.
- They can mean quick funding in one lump sum. Home improvement loans are installment loans, which means that once you’re approved, you’ll receive one lump payment for the total loan amount. In some cases, you can get funding as quickly as the same day.
Cons
- They may cost more. Because home improvement loans are generally unsecured, you may find that they have higher interest rates than secured funding options.
- There’s no tax benefit. Some secured home improvement funds (such as a HELOC) may allow you to claim a tax deduction on the interest paid. But unsecured loans have no such benefit.
- It may be difficult to borrow enough money. Many unsecured home improvement loans have limits of $35,000 to $50,000, assuming that your credit score is high enough to qualify for that much. If you have a low credit score, or need more money for a bigger project, this type of loan may not be right for you.
What are some alternatives to home improvement loans?
If a home improvement loan isn’t right for you, or doesn’t provide enough funding, there are some other alternatives to consider.
- Home equity loan: A home equity loan may offer lower interest rates and higher loan limits, since your property is used to secure the debt.
- Home equity line of credit: Home equity lines of credit, or HELOCs, provide a revolving line of secured credit that you can tap into at any time, often with competitive interest rates.
- Cash-out refinance: Though the process is a bit more involved, cash-out refinancing allows you to pull from your property’s existing equity to fund everything from home improvements to paying off debt or purchasing a second property.
- Renovation mortgage: A renovation mortgage may be one simple loan option if you’re looking at buying a property that already needs improvements or repairs.
Home improvement projects may be pricey at times, but they can add to both your enjoyment of the property and its overall value. Paying for these improvements out of pocket isn’t always feasible though, so consider your needs and personal situation when shopping around for the right home improvement loan product.
Credible makes it easy to compare personal loan and mortgage rates from multiple lenders.