How to Use a Personal Loan for Home Improvement

If you’re planning a home renovation but don’t have the cash to cover it, a personal loan can be a good solution. These loans offer fast funding with no collateral requirements, making them an appealing option for many homeowners.

In this article, we’ll explain why personal loans are commonly used for home improvement, the pros and cons of this decision, and how to apply for one. Understanding how these loans work will help you make the right financing decision for your project.

Why use a personal loan for home improvement?

If you’re planning a home renovation and don’t want to dip into your home’s equity or refinance your mortgage, a personal loan can be a good alternative. These loans can be used for virtually any purpose, from minor repairs to full-scale remodels. Because personal loans are unsecured, you won’t need to use your home as collateral and put your property at risk.

And compared to the lengthy process of applying for a home equity loan or line of credit, personal loans typically have faster approval and funding timelines. Some lenders even offer same-day funding, which is ideal if your project is time-sensitive, like a roof that needs immediate repairs.

Personal loans usually come with fixed interest rates and repayment terms, so your monthly payments will stay consistent throughout the life of the loan. That kind of predictability can make it easier to manage your finances while the renovations are underway.

Personal loan for home improvements pros and cons

Using a personal loan to fund a home renovation project comes with potential advantages and drawbacks. Here are the biggest things to consider first.

Pros

• No collateral: Personal loans are unsecured, so you don’t have to worry about losing your home or other assets if you default.
• Quick approval and funding: Many lenders offer same-day or next-day funding, which is helpful if you need to start your project quickly.
• Fixed repayment schedule: Personal loans typically come with fixed interest rates and set monthly payments.
• Flexible loan amounts: You can borrow as little as $1,000 or as much as $50,000, depending on the lender and your credit profile.
• Can be used for anything: Whether it’s a kitchen remodel, HVAC upgrade, or bathroom renovation, there are no restrictions on how you use the money.
• Good option for limited home equity: If you haven’t built up much equity in your home, a personal loan may be one of the few financing options available.

Cons

• Higher interest rates: Personal loan rates tend to be higher than secured loans, especially if you have fair or poor credit.
• Shorter repayment terms: Most personal loans have two to seven-year repayment terms, which can lead to higher monthly payments.
• Loan fees may apply: Some lenders charge origination fees, prepayment penalties, or late fees, which will add to the total cost of the loan.
• Lower borrowing limits: Compared to home equity loans or HELOCs, personal loans may not offer enough funding for large-scale renovations.
• Credit score impact: Applying for a personal loan results in a hard credit inquiry, which may temporarily lower your credit score.

How to get a personal loan for home improvement

Getting a personal loan for a home improvement project is a relatively straightforward process. Here are the steps you’ll take.

1. Estimate your costs

Start by figuring out how much money you’ll need — get quotes from contractors, price out materials, and build in a small cushion for unexpected expenses. Knowing your budget will help you borrow the right amount.

2. Check your credit score

Your credit score plays a big role in the interest rate and loan terms you’re offered. Most lenders require a score of at least 620 for approval, though better rates are available if your score is higher. If your credit score is low, consider taking steps to improve it before applying.

3. Compare lenders and loan offers

Shop around with different banks, credit unions, and online lenders to find the best personal loan rates and terms. Look closely at the interest rate, repayment term, fees, and total cost of the loan.

4. Get prequalified

Many lenders let you check your eligibility with a soft pull, which won’t affect your credit score. Prequalifying gives you an idea of what terms you may qualify for and helps narrow down your options before formally applying.

5. Gather your documentation

Once you’ve chosen a lender, prepare the necessary documents for your application. Most lenders will ask for a government-issued ID, pay stubs or tax returns to verify your income, and details about any other debt you have.

6. Submit your application

You can complete the application online, and if you’re approved, you’ll receive the loan agreement to review and sign. Be sure to read the agreement carefully, paying close attention to the interest rate, fees, and any prepayment penalties.

7. Receive your funds

After signing the loan agreement, the funds are usually deposited into your bank account within a few business days. Some lenders offer next-day or even same-day funding. Once the money hits your account, you can begin your home improvement project. Keep good records of your spending, and try to stick to your original budget as closely as possible.

Make your monthly payments on time to avoid late fees or damage to your credit. If you can afford to pay extra, some lenders let you make additional payments without penalty, which can help you pay off the loan faster and save on interest.

The bottom line

A personal loan for home improvement can be a flexible way to fund renovations, especially if you don’t have home equity or don’t want to use your home as collateral. With fast funding, fixed monthly payments, and no restrictions on how you use the money, personal loans can be a good choice for everything from emergency repairs to full-scale remodels.

That said, they’re not right for everyone. Higher interest rates, shorter repayment terms, and lower borrowing limits may make them less-than-ideal for large or long-term projects. It’s important to weigh the pros and cons based on your financial situation and the scope of your renovation.

And if you’d like to explore a wider spectrum of options to fund your home improvement project, check our guide on the best home improvement loans.