All You Need to Know About Unsecured Personal Loans for Home Improvement

If your deck is slouching or your kitchen looks like it’s been ripped from a scene in Back to the Future, it may be time to consider doing some upgrades around your home. If you’re a bit leery of credit card debt and you don’t have home equity built up, yet, you may be contemplating an unsecured personal loan for your home improvement projects. If you are, you’ll want to fully understand your options and the ins and out of an unsecured personal loan.

If you’re a new homeowner, you may have run into some areas of your home that need some fixing up. An unsecured personal loan can help you obtain the funds to make your house a home. An unsecured personal loan can also get you out of a situation where you’re faced with an emergency repair that could become more costly if not quickly addressed.

As a homeowner, you want your home to exude your values and style while creating a comfortable living environment for you and your family. You also want your house to be safe for your children and guests. To create a home you’re proud to call your own, you need money to pay for the renovations. An unsecured personal loan can be a great option if you need cash upfront to make repairs, replace outdated or unsafe home features, and add value to your home. Unsecured personal loans for homeowners can provide funds for your home improvement projects.

This articles will answer the following questions:home loan

  • What is an unsecured personal loan for home improvement?
  • Is taking out an unsecured personal loan a good idea for home improvement?
  • What can an unsecured personal loan be used for?
  • What are my other options?
  • How much money should I borrow for my project?
  • Can I take out a personal loan with bad credit?
  • What do I need to prepare to apply for a loan?

What is an unsecured personal loan for home improvement?

Some lenders advertise special loans for home improvement. Even though these sound perfect for your needs, be careful to not jump into a loan too quickly. Home improvement loans are just a form of personal loans. Many lenders try to differentiate themselves by calling their loans “home improvement loans,” but these are just personal loans under a different title. Whether they’re labeled as “home improvement loans” or not, any personal unsecured loan can be used for your renovation projects.

So what is a unsecured personal loan for homeowners? Personal loans describe money that a person borrows from a lender which can be used for a variety of expenses. A personal loan differs from a business loan, a mortgage, a student loan, and a car loan because the borrower does not need to use the money for a specific purpose. Whereas a student loan can only be used for tuition, books, and school-related expenses, personal loan money can be used for anything from a new faucet to periwinkle paint for your daughter’s room.

Many personal loans are unsecured. “Unsecured” means the borrower doesn’t need to use personal property as collateral for the loan. For secured personal loans, you have to connect something valuable to the loan in case you stop making payments. Then, the lender can repossess and sell the valuable property to recoup the loan money. Mortgages and auto loans are the most common forms of secured loans.

You may be wondering what factors a borrower uses to decide if an unsecured or a secured loan is the right choice for them. Well, unsecured loans often have higher interest rates because they are viewed as riskier by the lender since they do not require collateral. Secured loans less risky because people do not want to part with their belongings. Because these loans are regarded as less risk than unsecured loans, lenders charge lower interest rates because they feel they’re more likely to have the loan repaid in full.

Unsecured loans have other features that make them unique. First, you can borrow as little as a  few hundred or as much as tens of thousands. Lenders will look at your credit score and income to decide how much they’d be willing to loan you. Unsecured loans also have fixed repayment terms, which means a lender will give you a set timeframe to repay the loan. Unsecured loans come in two, three, five, and seven-year terms. They also have set monthly payments, so you always know how much your payment will be from month-to-month. You can calculate your interest over the life of the loan, so you know how much interest you can expect to pay for your project.

So, an unsecured personal loan, or a “unsecured installment loan,” is essentially a set amount of money borrowed based on your income, with a set interest rate, and repayment time based on your credit profile.

For your home improvement project loan, you’ll want to calculate how much money you need and account for a bit of oversight or margin. This can help you accurately estimate how large of a loan to apply for.

Is taking out an unsecured personal loan a good idea for home improvement?

Unsecured loans for home improvement can be an excellent solution to find the money you need to fix up your house. They allow you to create the home you want without putting your house at risk for foreclosure or repossession. An unsecured loan can also get you the funds you need for unexpected emergency expenses like roof repairs or plumbing leaks that can escalate in damage and cost if left unfixed for too long.

You always need to borrow wisely, though. If you’re planning on renovating your kitchen, make sure you can afford the repayment of the loan and budget for the monthly payment.

The easiest way to do this is to gain a handle on your current spending. Write down all of your monthly expenses over the course of a few months. This will help account for occasional and incidental expenses like work clothes and seasonal spending. Then you should analyze how much money you make compared to how much you spend. If you have enough money remaining to comfortably and easily make your monthly payment, you should be able to afford to repay your loan. You can always seek the advice of someone with financial expertise if you’re unsure.

Unsecured personal loans can also help you improve the value of your home if you’re looking to sell. Major trends in home value can dramatically affect how much your home is worth. If your house doesn’t have an open concept layout with hardwoods, you can make these changes to increase your home’s sale price and  get a great return on your investment. If you want to give your house that curb appeal buyers are looking for, then a personal loan can be the difference between them pulling into the drive and walking through the front door with an offer or backing out and heading down the street to another listing.

Unsecured personal loans can be a valuable option for:

  • Borrowers that recently bought their home, considering they haven’t accrued home equity
  • Homeowners with good credit since their interest rates will be lower
  • Borrowers that want to list their home on the market
  • Borrowers that want the freedom to spend on what they feel is a priority

Personal loans can be a great way to eliminate credit card cost and not borrow against your home. You can find unsecured personal loans with interest rates starting at 4.99%. If you want a set monthly repayment and don’t want to have to charge up your credit cards, an unsecured personal loan can offer you the stability with a lower rate than a credit card.

What can an unsecured personal loan be used for?

When it comes to choice, unsecured personal loans offer you choice and freedom to choose what you want to spend the money on. So, if you want to overhaul your garden or finish your basement, you can choose to do so with the lump-sum money you borrow using an unsecured personal loan.

So, unsecured personal loans for home renovations can be used for:

  • Kitchen remodels
  • New flooring
  • New appliances
  • HVAC repairs and replacements
  • Opening up walls
  • Bathroom remodels
  • Finishing your basement
  • New insulation
  • New windows
  • An addition
  • A new roof
  • Lawn and garden
  • Plumbing repair
  • Cabinetry
  • Electrical upgrades
  • Paint and decor

Personal loans can be a great way to make your home reflect who you are and what you care about. They can also help you get a lump sum for major repairs, quickly, without stipulating what you spend the money on.

What are my other options for funding home improvement projects?

Unsecured personal home improvement loans are not your only option when you need money to make changes to your home.

Home Equity Lines of Credit or Home Equity Loans

A home equity loan is an amount of money borrowed against how much you’ve paid towards your mortgage and how much your home has increased in value. You can usually borrow up to 80% of what you’ve repaid and the value of your home. And you will gain a monthly payment in addition to your mortgage payment with a different interest rate. Most home equity loans or lines of credit will give you 5-15 years to repay the loan.

If you don’t have equity built up in your home, then a home equity loan will probably not allow you enough money to cover your home improvement.

Title I Home and Property Improvement Loans

These are a great option if your project doesn’t cost more than $7,500 and you have time to apply and compare annual percentage rates. A Title I Home and Property Improvement loan allows you to borrow with collateral for up for $7,500.

How much money should I borrow for my project?

When it comes to fixing up your house, an unsecured loan doesn’t limit what you can use the funds for. You can make minor changes like switching out light fixtures, cabinetry hardware, painting, or doorknobs. Or you could tear down walls, rewire your home, or replace your roof. It’s important to save yourself the hassle of needing to borrow additional money by budgeting your project correctly and accounting for any additional costs that may arise.

We’ve summarized some of the average costs of home renovations to help you establish an accurate budget, so you can estimate how much you should borrow:

By Type of Project

    • Knocking down walls and additions: Knocking down an interior wall costs about $300 to $500, but this does not include the floor repairs and ceiling repairs that may result. If the wall is load bearing, you’ll need a ceiling beam to support the weight. You will also need to account for relocating plumbing, electrical, and resurfacing the floor and ceiling. The overall cost of adding space or removing walls will likely cost anywhere from $6,000 to $95,000.
    • Basement Renovations: Finishing your basement can give you an edge on the real estate competition. This renovation costs homeowners $19,000 on average and large basements with elaborate designs can cost up to $40,000.
    • Plumbing Issues: Plumbers charge between $45 and $175 per hour on average. This can be difficult for homeowners to estimate, so you’ll probably want to get a quote from a plumber before seeking out your loan.
    • Electrical Repairs: Electricians charge between $50 and $100 per hour.
    • HVAC: A new air conditioning unit with installation costs about $5,000. A furnace will run you about $4,000, and a heating pumps can cost around $5,000.
    • A New Roof: Roof replacement and repair is highly dependent on the size of your roof or the area in need of fixing. Replacing your roof will cost between $1,700 for just re-shingling and a slate roof will cost you about $120,000.

 

 

 

Specific Rooms

 

  • Kitchen: The average kitchen remodel costs $20,500. This can range from a small remodel of about $4,000 to a major overhaul of about $50,000.
  • Bathroom: A homeowner spends between $6,000 and $14,000 on the average bathroom renovation.

 

Other Considerations

 

  • Contractor: Talented and trustworthy contractor will charge you based on the cost and size of the project. This depends on the scale of your project. Most contractors will ask for a 1.50 markup.
  • Interior Decorator/Designer: Most interior designers charge $50 to $200 per hour and a markup fee on the furniture and fabrics you select.
  • Permitting: Most remodeling permits will cost about $900.

 

 

Can I take out a personal loan with bad credit?

Your credit history, income, and credit score directly affect how much you can borrow and what your interest rate will be. Even with bad or poor credit, you can find a lender that will work with you. Many lenders are willing to work with borrowers with credit scores as low as 630 and some will work with borrowers with scores as low as 450.

Taking out a personal unsecured loan for your home improvement can help you improve your credit score. One factor that determines your credit score is how many types of debt you have. Having a diverse range of credit types shows lenders that you can juggle different kinds of payments with varying terms. Taking out an unsecured personal loan can add another type of credit to your credit portfolio. Unsecured personal loans can also help you form better repayment habits since your payment will be consistent every month and there is a definite end-point to your repayment.

What do I need to prepare to apply for a loan?

When it comes to setting yourself up for success while applying for loans, you want to be prepared with all the correct documentation and records that demonstrate you’re a good borrower. Different lenders will ask for different forms of financial and identity documentation, but most ask for a few standard things:

  • Proof of Income: payment stubs from the previous 3 months or bank statements
  • Proof of Identification: your driver’s license, passport, visa, or social security card
  • Proof of Residency: mortgage, electric bill, or water bill
  • Proof of Employment: employer’s phone number, address, and email address
  • Tax Returns: 1099s or w-2 from the previous 1 to 4 years

If you have bad credit or any major blips in your borrowing history, you need to be prepared to explain what happened to the lender and justify or support your explanation with documentation.

After a lender accepts your application, they will tell you how much they’re willing to lend you, what your interest rate will be, what your monthly payment is, and what your loan term is. You should compare rates from multiple lenders to find the best loan for you. Make sure the repayment plan and interest rate works for you. You also want to make sure your lender is will to loan you enough to cover your repair.

Final Thoughts

When it comes to sprucing up your abode, make sure you have the funds to do it correctly. The last thing you want is to create additional costs or invest in a renovation that won’t last. Use caution when taking out a loan and make sure you can repay the loan while comfortably maintaining your lifestyle.

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