A home improvement loan helps you pay for renovations and repairs around the house. If you’re looking to spruce up your home or finish some repairs, you can use home improvement loans to help fund your projects. The home improvement loans are typically unsecured loans. To get this loan the bank or lender doesn’t require collateral—something of value like your house—to secure the loan. You’ll pay interest on the full loan amount and usually have one to seven years to repay it.
Americans spend an average of $15,000 on a single home improvement project, according to Rocket Mortgage.
If you don’t have the savings to float your entire improvement project, you might consider applying for a personal loan since it can be used for a variety of expenses and typically carries lower interest rates compared to credit cards. A personal loan has to be repaid in regular installments over a specific period of time. The longer the term of the loan, the lower your monthly payments will be, but you will pay more interest charges.
Select compiled a list of five of the best personal loan lenders to consider if you need to finance a home improvement project. We evaluated dozens of lenders in order to determine the best personal loan. Our review included factors like interest rates, fees, loan amounts, and term lengths, as well as how funds are distributed, autopay discounts, customer service, and how quickly they are available.
How does a home improvement loan work?
Lenders will provide you with unsecured home improvement loans for up to $100,000. These loans come in a lump sum, and you repay them in monthly installments, usually over two to twelve years.
What is the process of getting a home improvement loan?
In contrast to home equity loans, home improvement loans do not require collateral. If you are unable to repay a home improvement loan, your credit will suffer.
Equity financing vs. home improvement loans
Taking out a home improvement loan makes sense if you don’t have enough equity in your house or don’t want to use it as collateral. Equity is your house’s value less the amount you owe.
You may be able to get a lower monthly payment on a home equity loan or line of credit if you have equity.
What’s the difference between personal loans and home equity loans?
Personal loans are unsecured, meaning there is no collateral, while home equity loans are secured by your home.
In addition, the two financing options have different borrowing amounts, rates, and qualification requirements.
Personal loans and home equity loans differ in several ways.
| Personal loans | Home equity loans | |
| Loan amount |
$1,000 to $100,000. |
Up to 80% of your home’s value, minus your outstanding mortgage. |
| Repayment terms | 2 to 7 years | up to 15 years |
| Rates |
6% to 36%. |
The average range is 4% to 8%. |
| Secured or unsecured | Totally unsecured | Secured by your home |
| Credit score requirements | Minimum 560; higher scores are more likely to qualify. | Minimum 620. |
Personal loans: when to use them
As long as homeowners have enough cash flow to make the monthly payments, personal loans can be a good option for homeowners who have no equity or do not wish to use their equity, according to Ryan Greiser, owner, and certified financial planner at Opulus, a financial advisory firm outside of Philadelphia.
They’re also a good option for urgent expenses since approval and funding take a few days rather than weeks.
If you have bad credit, a personal loan will be more expensive since qualifying and getting a low rate are key factors.
Advantages:
- With an unsecured loan, you don’t have to provide collateral, and lenders cannot take your property if you don’t repay the loan. New homeowners or those with little equity can qualify for a personal loan because lenders do not consider equity on an application.
- Most lenders can fund a personal loan within a week of approval – some lenders can even fund the loan the same day or the next day.
- Borrowers can pre-qualify with a soft credit pull to preview their loan amount, rate, and repayment term.
Disadvantages:
- Those with fair or poor credit (scores below 690) will likely get a rate on the high end of the range. Personal loan annual percentage rates range from 6% to 36%.
- Personal loans may have higher monthly payments than home equity loans due to high-interest rates and short repayment terms.
The best time to take out a home equity loan
The interest rates on home equity loans are low, and the repayment terms are long, so you don’t have to worry as much about your credit score as you would with a personal loan.
In order to qualify for a home equity loan, you must be comfortable using your home as collateral. Home equity loans are second mortgages, which means the lender can take your house if you fail to repay.
Advantages:
- The average home equity loan rate is 4% to 8%. The collateral on the loan keeps the rate low.
- It isn’t necessary to have stellar credit to get a home equity loan, and borrowers with fair credit may be able to get a lower rate on a home equity loan than on a personal loan.
- You may be able to deduct interest on a home equity loan if you use the funds for home improvement. This isn’t the case if you use the funds for other purposes.
Disadvantages:
- From application to funding, a home equity loan could take three to six weeks, according to Deka Dike, a mortgage loan officer at U.S. Bank.
- If you can’t repay the loan, your house is at risk.
- The balance of the home equity loan will be due if you sell your home before the loan is repaid.
A Guide to Getting a Home Improvement Loan
While the process varies by lender, follow these general steps to apply for a personal loan:
- It is possible to check your credit score free of charge through your credit card issuer or any website offering free credit scores. If you have a credit score of at least 670, you will have the best chance of qualifying for the loan. However, if you have a score of at least 720, you will have the best terms.
- Take steps to improve your credit score if necessary. If your score falls below 610 or you want to boost it, reduce your credit usage or pay off unpaid debts before applying.
- You’ll receive your money in a lump sum and pay interest on the entire amount-so only borrow what you need. Calculate how much your home improvement project will cost and determine how much money you need to borrow.
- You can find the best terms and interest rates by shopping around. Many lenders let you prequalify before submitting your application, so you can see the terms you would receive with only a soft credit inquiry.
- If you find a lender who offers you the best terms for your situation, you can submit your application online or in person. This process can take a few hours to a few days depending on the lender.
What is the best time to get a home improvement loan?
Unless you save up enough money to pay for your home improvement project in cash or have an emergency fund, you may need financing to help with a project or repair. A home improvement loan, like any type of personal loan, should only be used when you can afford the repayments. You may end up in a debt trap if your income is inconsistent or the new monthly payment does not fit into your budget if you get a home improvement loan.
In order to determine how much money you need to borrow and how much your monthly payments will be, outline the scope of your project before applying for a home improvement loan. Determine if the loan is a risk you can handle safely by comparing it to your current budget. If it isn’t affordable, take time to save up the money or consider an alternative such as a family loan.
What You Need to Know About Home Improvement Loans
You don’t have to meet universal qualifications to qualify for a home improvement loan; each lender determines its own requirements. Nevertheless, most lenders look for the same general qualifications in borrowers, although the specific criteria they use may vary within each category, such as:
- Sufficient income – The lender wants to make sure you will earn enough money to repay the loan and that your income will remain stable.
- Good or excellent credit score – Low-interest rates are much more likely to be available to you if you have a credit score of at least 670.
- Low debt-to-income (DTI) ratio – You can use your DTI to find out whether you can afford a loan based on the percentage of your monthly income that goes toward debt payments.
- Citizenship status – Some lenders only lend to U.S. citizens. Others extend that umbrella to permanent residents, as well as DACA recipients and non-permanent residents.
- Collateral or co-signer – Some lenders will allow you to apply for a loan with a co-signer or offer collateral if you are unable to meet the loan qualifications on your own.
Home improvement loans: advantages and Disadvantages
The Advantages of home improvement loans
- No collateral is required: Unlike home equity loans, which require you to pledge your house as collateral, home improvement loans don’t require you to pledge your house as collateral.
- Flexible eligibility requirements: If you don’t have equity in your home, a home improvement loan may be more likely to be approved than a home equity loan.
The Disadvantages of home improvement loans
- May have high-interest rates: The interest rates on home improvement loans can be high, especially if you have limited credit or are taking out a large sum of money.
- Short repayment terms: When compared to other financing options, home improvement loans have relatively short repayment terms. If you need more time to repay the money, consider a home equity loan.
Home improvement loans of other types
Depending on your current situation, there are other options for getting the money you need for home improvement projects.
HELOCs & Home Equity Loans
Those with equity in their homes, less their remaining mortgage balance, may qualify for a home equity loan or home equity line of credit (HELOC). In both cases, your home secures the transaction, so if you fail to repay, the lender can repossess it.
Either way, you can use home equity loans and home equity lines of credit to help finance your home improvement projects. Home equity loans are disbursed as lump sums, and HELOCs allow you to withdraw funds as needed.
Refinance with cash out
Your existing mortgage is replaced with a new, larger one in a cash-out refinance. After the refinance, you’ll need at least 10% to 20% equity. You can use that money for home improvements or withdrawal the difference. This percentage depends on your lender and whether you’re willing to buy private mortgage insurance (PMI) for the new loan.
Cards of credit
It is also possible to use credit cards in addition to loans and lines of credit. Despite their limitations, credit cards can be an excellent way to access credit limits that you can reuse as you repay your balance. They are typically suited for smaller home improvement projects, not your $20,000 bathroom remodel. In addition, you will only pay interest at the end of your billing cycle on unpaid balances.
Credit cards with 0% APR can be suitable for individuals with a credit score of at least 670. During the introductory period, your balance will not accrue interest; however, unpaid balances at the end of the introductory period will. These cards typically offer 0% interest for a period of six to 21 months. Your home improvement project could be interest-free if you repay your balance before the 0% APR period ends.
The difference between a home equity loan and a home improvement loan
Home improvement loans are unsecured loans borrowers can use to remodel, repair, and renovate their homes. Home improvement loans are not secured by the home.
Home equity loans, on the other hand, use the equity in the home as collateral. Borrowers may use the money for home improvement projects, but this is not a requirement.
Since the lender can seize your home if you default, home equity loans have lower interest rates. In general, home improvement loans have higher interest rates because there is more risk to the lender, but the borrower doesn’t have to worry about losing their home if they default.
Costs of Home Improvement Projects
The cost of renovating or improving a house usually depends on where you live and the room you are working on. For instance, kitchens and bathrooms usually cost the most, whereas bedrooms, living rooms, and basements are more affordable. Forbes Home’s list of common home improvement projects and their average costs:
| Project | Cost range |
| Bathroom Renovations | $2,500 to $30,000 |
| Minor roof repairs | $150 to $1,500 |
| Major roof repairs | $1,500 to $7,000 |
| Window replacement | $200 to $1,200 |
| Exterior painting | $1,800 to $13,000 |
| Interior painting | $950 to $2,900 |
| Kitchen Remodeling | $5,000 to $60,000 |
The methodology
Based on 14 data points in the categories of loan details, loan costs, eligibility and accessibility, customer experience, and application process, we selected the six best lenders for each category.
- Details of the loan: 20%
- The loan cost is 35%
- Accessibility and eligibility: 20%
- 15% of customers are satisfied with their experience
- 10% of applications are accepted
A number of characteristics were also considered within each category, such as loan amounts, repayment terms, and interest rates. Furthermore, we examined each lender’s minimum credit score requirements, whether co-signers or joint applications are accepted, and its geographic reach. Additionally, we assessed the customer support tools, borrower perks, and features that made the borrowing process easier—such as prequalification and mobile apps.
The best home improvement loans
- Best overall: LightStream Personal Loans
- Best for borrowing smaller amounts: PenFed Personal Loans
- Best for lower credit scores: Upstart Personal Loans
- Best for long repayment terms: SoFi Personal Loans
- Best for fast funding: Discover Personal Loans
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