Best Home Improvement Loans of July 2020

A personal loan used for home improvements is like any unsecured personal loan: It’s not guaranteed by your home, the rate you receive depends primarily on your creditworthiness and the rate and payments are usually fixed, which means you can reliably schedule monthly payments into your budget.

• Higher rates: Since the loan is unsecured, the interest rate may be higher than on a home equity loan or home equity line of credit. Rates from online lenders range from about 6% to 36%. Rates for home equity loans and HELOCs are usually in the single digits.

• Fast funding: Online applications typically take a few minutes, and funds are available within a day or two at some lenders. Learn how to get a personal loan for a smoother process.

• No tax benefits: You can’t claim a tax deduction on the interest on personal loans as you might be able to do with mortgage interest.

Interest rates on personal loans generally range from about 6% to 36%. As with most credit products, the rate you receive depends a lot on your credit score. The better your score, the lower your rate and the less interest you’ll pay over the life of the loan. The interest rate also affects your total monthly payment, as does the term length; a longer term means lower monthly payments, but more interest.

There are few limitations on how you spend the funds from an unsecured loan. You can finance solar panels, a new deck or even a swimming pool with the money from a home improvement loan.

Credit unions: Your local credit union may be the best place to get a personal loan, especially if your credit is poor or average. The maximum annual percentage rate at federal credit unions is 18%.

Federal programs: Some government programs can help pay for a home renovation. The Federal Housing Administration has two programs: Title I loans and Energy Efficient Mortgages. You can look for a “Title I Home Improvement” lender in your state on the HUD website.

Credit cards: If you have excellent credit and a small- to medium-sized home improvement project, there are strategic ways to use a credit card to cover the expenses, including using rewards or a card with a 0% introductory APR. If you qualify, you’ll pay no interest charges for a promotional period, typically 12 to 18 months.

Home equity loans and HELOCs: If you have equity in your home, you may be better off with a low-interest secured loan.

Both options are likely cheaper than personal loans, with longer repayment terms up to 20 years. Keep in mind that you can lose your home if you fail to repay the loan. Learn the difference between the two to decide which fits best with your plans.

Cash-out refinancing: You can refinance your existing mortgage into a higher loan amount and use the difference to pay for your renovation. Consider this option if current mortgage rates are lower than the one you’re paying now.