Many homeowners have home improvement projects on their wish list for this year. Many homeowners are unaware that there are other options for financing these home improvements.
When considering a home improvement project, personal loans are often avoided. Although they have a shorter repayment period, less borrowing power, and no tax-deductible interest, personal loans offer many advantages. Click here to find out more.
Personal loans: Benefits
Convenience is the top benefit of personal loans. Personal loan lenders usually promise fast and easy loan approvals, processing, and disbursement of funds. Most personal loan lenders offer an easy process that can be completed over the Internet. You could be approved within minutes!
You can also apply for a personal loan online without much documentation. Most personal loan lenders do not require any of the following:
- An excellent credit score.
- High or stable income
- Home inspections, appraisals, and valuations.
- Collateral.
Personal loans are usually unsecured, and the process can be completed in a single day. For the same reasons, many people avoid personal loans because not providing collateral increases the risk of borrowing for the lender. This also means that interest rates are higher.
Positively, because personal loans are unsecured, you don’t borrow against the value of your home. If you are unable to repay your loan on time and in full, for whatever reason, then you will not lose your home or be thrown out as with a foreclosure.
Personal loans are also perceived as expensive. They have lower and fewer origination fees compared to home equity or home equity line of credit (HELOC). The interest rate is fixed, so your monthly payment remains the same despite fluctuations in the market.
Personal Loan: Which is Better? Which Personal Loan is Better?
Homeowners are often concerned about choosing between personal loans and home loans for home renovation projects. Both can be used to finance home improvements, but there are some key differences you should be aware of.
If you require a large amount of money for renovations, a home loan may be the best option. You must meet certain eligibility requirements. High loan costs are more expensive when your credit score falls.
You may also damage your credit rating, making it more difficult to get a loan in the future. If you do not pay the loan in full and on time, your lender can seize property to recover debt.
A personal loan would be recommended, however, if you require instant funding. It offers lower borrowing amounts than home loans, but its application and loan process is fast and easy. You can do it anywhere and anytime.
Many personal loan lenders are lenient and don’t discriminate against people who have no credit or low scores. Some even tailor loans to a person’s needs and abilities. These loans are easy to manage and great for new borrowers.
When is the right time to take out a Personal Loan for Home Improvement?
Check first if you can predict your costs. Budgets for home improvements often get off track, which makes it difficult to estimate the loan amount in advance.
You’ll be in a financial bind if you don’t have enough money to borrow, and your loan lender doesn’t raise the loan amount midway. If you borrow more money, the interest will be higher.
Personal loans are only recommended for small and short home improvements. A secured or unsecured credit line may be more suitable if you’re planning a larger renovation project with an uncertain budget.
Calculate the equity in your home. A low equity will reduce your chances of obtaining a cash-out refinance or a line of credit for home equity. A personal loan could be the best solution in this situation.
If you live in an area that hasn’t seen rapid growth or if you buy a property with only a small deposit, it is likely your equity will be low. Subtract the total amount of debt secured by the property from its appraised price to calculate equity.
Final Thoughts
If you want to know if a personal loan is right for your project, consider the size and cost of your renovation, your equity in your home, and the terms offered by a lender. It’s important to note that if you want a personal loan for your next project, it is best to compare your own financial situation with the pros and cons of a personal loan. It’s always a good idea to consult a professional if you are unsure.
