Over time, you may want to change something in your home. It could be new tiles for your bathroom, new cabinets for your kitchen, or a new deck in your yard. No matter the kind of home improvement you’d like to do, though, you’ll need to allocate a budget to be able to do so. And as you probably already know, home refurbishment projects can be expensive.
So how do you finance your home improvement project?
One of the most popular ways to fund a home makeover is through a home renovation loan.
Is a personal loan a good idea?
For a lot of people, going into debt may not be a wise choice. But if your house is in dire need of a touchup, then you’ll need to find a way to be able to do that. This is why you’ll have to take out a loan for home repairs.
So you won’t fall neck-deep in debt, you have to make sure that you choose the loan package carefully, based on the interest rate. Rates on such loans can range from 2.49% to 36%, depending on the creditor.
Unlike home equity loans, wherein a borrower uses his or her home’s equity as collateral for a loan, personal loans are usually unsecured loans. This can be good if you don’t want to put your property up as collateral. Although interest rates are usually higher, most home renovation loan packages have a fixed term of one to seven years. This can be more suitable if you prefer a more predictable monthly payment.
There are homeowners who would prefer using a credit card to pay for home repairs. If you qualify for a credit card with a 0% introductory APR, you can finance your home improvement project using this option. But if you’re not sure that you’ll be able to pay the amount in full before the expiration of the APR period, which can be from 12 to 18 months, you could be charged with a higher interest rate for the outstanding balance. This may be higher than what you’d pay with a personal loan.
Aside from that, a personal loan is good for those with bad credit scores. Even if you have a poor credit history, you can still get a loan if you have a co-signer. A home improvement loan is also more favorable in your FICO credit scoring than credit cards with revolving debts.
A personal loan is indeed a better choice compared to other financing options. Would you rather not take out a loan and put off the repair of a leaking pipe or flooded basement? If you do this, you could end up spending more on major repairs in the long run.
Before applying for a personal loan
If you’ve decided to take out a loan for home repairs, there are things that you need to consider first.
How much money do you need?
If you want to pay off the loan as quickly as possible, borrow only the amount that will cover the home renovation expenses. Taking a loan that’s smaller than what you’re expecting to pay for the repairs can leave you with more financial needs. It’s also not advisable to borrow more than what’s necessary if you want to get out of debt as soon as possible. This is why you should first determine how much money you’re going to need before shopping around for a lender.
What is your credit score?
It’s also important to check your credit rating before applying for a loan. This will help lenders determine whether you can be trusted to pay off the loan at the end of the term. The higher your score the more chances you’ll have of qualifying for a loan with a better interest rate.
How do I find the right loan?
You will need to shop around and compare financing firms. You will also need to check each agency’s fees, loan terms, interest rates, and payment options to narrow down your choices. Your bank can also offer you a personal loan for home repairs with a prime interest rate. But the processing time will usually be longer than private companies. If you don’t want to wait and you badly need the money right away, then it’s best to take out a home renovation loan from a private firm.
What happens next?
Once you’ve chosen a lender, you will need to fill out an application form. You will be asked to provide basic information, such as your name, address, employment details, etc. Make sure to read the fine print to be fully aware of all your responsibilities and to avoid being surprised by additional charges.
Your application will then be processed. Once it is approved, you will receive your loan through direct deposit to your checking account. Other lenders may only give you a check for the amount you are borrowing or transfer your money onto a debit card.
Be sure to make your payments on time so you don’t end up paying fines and affecting your credit score. It’s also important to know how you will make the repayments, whether through a credit card, online transfer, or in a check through the mail.