Should you take out a personal loan for a home renovation project?

Tackling a home improvement project can be costly, but with competitive rates and terms, a personal loan can give you a home to call home. (iStock)

Home improvement projects can make a home a home. By modernizing a bathroom or kitchen, replacing windows or changing the living room flooring, you bring your distinctive touch to your home and add value.

But these improvements can also come at a high price, making it difficult for the average person to pay cash for improvements to their homes. There are many reasons for taking out a personal loan, but this is one of the most popular and can prove to be very useful.

What is a personal loan?

A personal loan is funded by a financial institution – a bank, credit union, or online lender and can be used for renovations, repairs, and additions to your home. The loan is repaid in fixed monthly installments over a predetermined period of time. Personal loans are generally unsecured, which means you don’t need collateral to qualify.

If you have good credit, personal loans usually have competitive rates and terms, which can be much lower than credit cards. To see what type of rate you qualify for today, simply enter your desired loan amount and your estimated credit score into Credible’s free online tools.

EVERYTHING YOU NEED TO KNOW ABOUT PERSONAL LOANS

Interest rates can range from 6% to 36%, according to Experian. For the first quarter of 2020, the interest rate on a typical 24-month personal loan was 9.63%, according to the Federal Reserve. In comparison, the average credit card interest rate was 16.61%.

Is it a good idea to take out a personal loan?

Personal loans don’t require any collateral, but they often come with higher interest rates, which may depend, in part, on your credit score. Personal loans offer other advantages:

Faster financing

It is often easier and faster to obtain financing for a personal loan. You can usually pre-qualify with your bank or credit union or through an online marketplace like Credible. Credible can help you compare multiple personal lenders at once to make sure you find the best deals.

9 OF THE BEST PERSONAL LOANS IN 2020

The prequalification will give you a good idea of ​​how much you will be eligible for. It also gives lenders an idea of ​​your creditworthiness when determining the best interest rate. It’s always a good idea to shop around on sites like Credible to understand how much you qualify and choose the best option for your particular project.

Shorter repayment terms

Personal loans have fixed terms, typically one to seven years, which can be helpful when budgeting for your monthly payments. A shorter term will also save on interest paid over the life of your loan. Home equity loans, on the other hand, have longer terms, typically five to 20 years on average.

To get an idea of ​​how much personal loan you may be eligible for, check out Credible’s personal loan calculator.

To decide which type of loan is the best, it is a good idea to shop around on loan sites like Credible. Once you know what amount you qualify for, you can choose the best option for your particular project. Also keep in mind that some lenders offer discounts to improve the energy efficiency of your home.

PERSONAL LOAN OR EQUITY LOAN: WHICH IS BEST?

Should I use a personal loan for renovation work?

In mid-August, one in 10 Americans couldn’t find a job and many people ran out of money. Despite this, house projects have grown as COVID-19-induced home shelter orders have been implemented. In a Bank of America survey of 1,054 Americans, more than 70% of people confined to their homes during the coronavirus pandemic have decided to embark on improvement projects.

Personal loans have no security deposit, are relatively easy to obtain, and do not require any collateral. But due to restrictions with COVID-19, many lenders are cracking down on those approved for loans.

Other options you might consider

Refinancing of collection

Instead of a personal loan, some borrowers may turn to cash refinancing for home renovations. A cash-out refinance is a new loan that replaces your existing mortgage. The cash payment is the difference between the balance you still owe on your mortgage and the value of the home. This difference is what you can spend on improvements to your home.

Visit Credible to view refinance rates and get cash refinance.

IS CASH-OUT REFINANCE A GOOD IDEA?

The only drawbacks are that you must have accumulated equity in your home to be eligible. You’ll likely have to pay closing costs, and because your home is being used as collateral, you risk foreclosure if you miss your loan payments.

Not sure if you can qualify? Use an online mortgage refinance calculator to find out.

0% credit cards

0% interest credit cards are a good option when your home improvement projects are smaller – up to $ 10,000 – and you plan to pay off the loan quickly. If your renovations are big, like adding a garage or renovating your basement, home equity loans make more tax sense. Keep in mind that 0% credit card interest is often for a limited time, so you’ll want to pay off your loan before the promotional period ends.

Visit an online marketplace like Credible to view many zero percent credit card options in one place.

ALL ABOUT ZERO PERCENTAGE INTEREST CREDIT CARDS

Home improvement loans

A secured home improvement loan, which is basically a home equity loan or a second mortgage, uses your home as collateral. You can often get a larger loan amount at a fixed, long-term interest rate. These loans are also generally tax deductible. However, since your home is being used as collateral, if you don’t pay off your loan, your lender can foreclose on your home.

There are also unsecured home improvement loans that do not use any collateral. The interest rates tend to be higher and the loan amounts smaller due to the risk to the lender. Unlike a secured loan, interest on unsecured loans is not tax deductible.

Home equity loans and HELOC

When you apply for a home equity loan, you are borrowing a portion (usually 80-90% at most) of the value of your home. If you don’t have enough equity in your home, a home equity loan is not an option. Although interest rates tend to be lower than for personal loans, loan terms are repaid over a longer period, often one to 15 years. So, over the life of your loan, you risk paying more interest than with a shorter-term personal loan with higher interest. The amount you qualify for depends on the home’s age, condition, location, and other factors.

HOME EQUITY LOAN VS. HELOC: WHICH IS THE BEST?

HELOCs can be used at any time, much like a credit card, and are paid off over an extended period, typically up to 10 years. During this time, you can use all or part of the borrowed funds. Like a home equity loan, the amount you get comes from the equity in your home. Since you only make interest payments during the drawdown period and pay back the principal later, HELOCs can be a good option if you plan to sell in the foreseeable future. HELOCs have variable rates that can go up or down, but they give you flexibility when you are unsure of the total cost of the renovation or renovation.

Home equity loans and HELOCs are secured against the equity in your home and can be good options for expensive projects. But if you default on your payments, your lender can foreclose.

When your home’s roof needs replacing, visit an online marketplace like Credible for all of your loan options.

And, when you’re ready to turn your home into the home of your dreams, but don’t know how to navigate the process during the coronavirus pandemic, assess your personal financial situation, then turn to Credible for the best loans. staff for 2020.

About admin

Check Also

Bank of America Auto Loan Review | Find the best loan for you

What types of car loans does Bank of America offer? Bank of America offers four …

Leave a Reply

Your email address will not be published.