Understanding The Pros and Cons of Home Improvement Loans

For most homeowners, their house is their largest investment. If you properly maintain your house, you not only create a more comfortable living space but also increase the resale value. There are many improvements you can make to your house, but major renovations are expensive.

There are also times where you need to make an important home repair but do not have the funds on hand. In these situations, you can take out a home improvement loan.

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Home improvement loans are classified as a personal loan. There are a few different loan variants available. Home improvement loans are paid back in either installments or monthly payments, largely based on the size of the loan and the preference of your lender. Typically, home improvement loans are paid back within three to five years. Your credit history and annual income are the biggest factors in determining how much you are eligible for from a home improvement loan.

Benefits of Home Improvement Loans

Home improvement loans are easier to get than most other loans. Lenders look favorably upon home improvement loans because it shows you are making a wise investment. To lenders, this means there is significantly less risk in issuing a loan. This gives you much more flexibility when searching for a home improvement loan. You can take the time to find a favorable lender.

Unlike other home improvement programs, there are less restrictions on what you use the loan for. This is beneficial, as many other home improvement programs only allow you to spend money on immediate repairs to keep your house operational. While you can use home improvement loans to make repairs, you can also add additional rooms, build a patio or install new piping.

Downsides of Home Improvement Loans

As with any loan, there are some risks with home improvement loans. You must factor your payment plans into your budget. If you fall behind on payments, you owe your lender even more in late fees. If you are not putting up collateral, the late fees are often higher, since the lender is taking a greater risk.

Planning ahead for home improvement loans can be tricky. There are some outside factors to consider, such as the overall value of your home and how much repairs or renovations will cost. This can greatly vary depending on your neighborhood, the real estate market and the time of year.

Secured vs. Unsecured Loans

One of the decisions you must make is whether you want a secured or unsecured loan. Secured loans are backed by some kind of collateral. With home improvement loans, your home is typically used as the collateral. With smaller loans, you may be able to offer something else as collateral, such as your car. Secured loans provide the lender with more security, since they are guaranteed to get something, even if you miss payments. As a result, you can typically get better rates with secured loans. Lenders are also more comfortable giving secured loans if you do not have the best credit score.

Unsecured loans do not have any collateral. Without collateral, your financial history and credit score have a significantly larger role in determining your eligibility. Additionally, interest rates are higher, since the lender is taking a greater risk.

FHA 203(k) Rehab Loan

Rehab loans are intended for either older or fixer-upper homes. A rehab loan combines both your mortgage and home improvement costs into a single loan. This keeps you from applying for multiple loans, and keeps you on a single payment plan. You also avoid paying closing costs or other loan fees twice. These loans are backed by the government. As a result, you have fairer payment plans and do not need as high of a credit score.

Home Equity Loan

A home equity loan allows you to borrow an amount equal to the equity of your home. This is calculated by taking your home’s value and subtracting how much you owe on your mortgage. These loans are also secured, with your home acting as collateral. Home equity loans have a low interest rate, making it a great choice if you need a larger loan to pay for major renovations.


SoFi is an online lender, offering home improvement loans up to a maximum of $100,000. SoFi offers fixed interest rates, starting at 5.99%. You can perform a soft credit check before you apply, giving you a general idea of what loans are available. SoFi has both secured and unsecured loans available. They also offer a unique option to put a temporary pause on your payments if you lose your job.


If you need an immediate home improvement loan, Avant may be your best choice. Avant uses a soft credit check to determine whether you prequalify. If you do, you can get a loan within 24 hours. Avant provides secured and unsecured loans, but they have a much smaller maximum limit compared to other lenders, only offering up to $35,000.

Wells Fargo

Wells Fargo is one of the oldest lenders. If you are already a Wells Fargo customer, you may be eligible for lower interest rates. Wells Fargo also operates thousands of branches throughout the United States, which is helpful for applicants who want to speak to a representative instead of using an online service. They provide special options for smaller loans under $5,000, providing lower repayment options.