There always comes a time when you have to make some home renovations. But what happens if you are unable to finance them? Turns out, there is an easy solution – you can take a personal loan and afford to make your dream improvements. To see if it would be a good idea in your case, you have to consider some things first like the size of your project, the cost, the amount of your equity (if you have any), etc. In this guide, we will talk about what this personal loan is, what to look for when you apply, and how to use it most wisely for home renovations.
Personal loan: What it i?
A personal loan refers to a contract the user signs with a financial institution (bank or other) whereby they promise to take an amount of money and pay it back month by month together with the resulting interest and costs. In other words, it is a way to borrow money that you are going to use for something related to you like buying a car, studying, vacations, etc. There is no problem to use this type of loan for home renovations as well. You can get such credit online on the same day and get started with your repairs right away.
Let’s take a look at the usual characteristics of the loan. Personal loans are mainly used for consumer goods and services. They have fixed interest rates and repayment periods in most cases. Perhaps, the only drawback is that you can’t take a large amount of money when you apply for an online loan. The good thing is they are usually unsecured which means they are a safer alternative than bank loans. Personal credits can have very flexible terms and you can pay through convenient methods.
Using a personal loan for home repairs: Is it a good idea?
In general, personal loans are more suitable for smaller or medium-sized projects such as replacing windows or room makeovers. Before making the final decision, it would be good to pay attention to their advantages and disadvantages. We have selected some of them to facilitate your choice:
- With a personal loan you don’t risk your home as it is with mortgage loans. Delays can get you penalty fees and bad credit, but there is no real danger of lenders taking your property.
- When you are approved for personal credit online, you can get your funds extremely fast. Some financial institutions may send you the money on the same day and you can start working on your home improvements immediately.
- You don’t have to pay any additional fees. There are credit calculators on the websites of loan companies that you can use to see exactly how much you will owe.
- It is not necessary to provide many documents. Institutions that grant personal loans online only require a copy of your ID card. In most cases, you don’t even need a document to prove your income. Lenders won’t ask you for any documents related to your property as well. You are free to use the funds for whatever you wish. Whether it will be home renovations or anything else, doesn’t matter.
- The interest rate of a personal loan might be high. Since these loans are typically unsecured, they charge higher interest rates than some other types of credit.
- The repayment period is shorter. The possible amount you can take is also smaller, and you will have to pay it back in a short time.
- If you are planning a major home repair, the loan amount might not be sufficient. In that case, you either have to add your savings or look for another credit from a different financial institution.
Alternatives to home improvement personal loans
If you are hesitant about taking out a personal loan for home renovations, you might want to explore some other alternatives. You can apply for a home equity loan and repay it in fixed monthly payments if approved. But there is one major catch with this type of credit – you must put up your home as collateral. Therefore, this option is a bad idea because you might lose your property if you are unable to pay.
Another alternative is to refinance a current loan and use the remaining amount for your home improvement project. But you might have to pay closing costs and it will extend the payment period a lot. One more option for fast funding is credit cards, but they are not preferred because of their high interest rates. It seems that personal loans remain the most favorable option after all.