Best home improvement loans in October 2022
Home improvement loans allow you to finance home repairs and updates, which can improve your home’s retail value and aesthetic appeal. For example, you can use a home improvement loan to finance a kitchen remodel or finish your basement. Unlike home equity loans, which are secured by your home, unsecured personal improvement loans for home improvements do not require collateral.
The best home improvement loans offer quick and easy access to funding, come with low APRs and no prepayment penalties, and have flexible repayment terms. When choosing a lender, it is important to look at the features of each loan product in addition to comparing rates. The goal should be to get the best loan for which you can qualify based on your credit score.
Applying for Home Improvement Loans
Once you’ve chosen a lender and pre-qualified for a loan, collect the necessary information and documents. You may need to provide information such as your Social Security number and proof of income. Decide whether you want to apply online with the help of customer service or over the phone and then go through the approval process.
The lender you choose may offer you multiple loan options. Choose the amount and term that best suit your needs. From there, create a new budget that includes loan repayments. That way, you can set up automatic payments and feel confident that you’ll always have the funds available to cover your monthly installments.
Keep in mind that some lenders will allow you to choose and change your due date, which can be helpful if an emergency pops up and you need extra time to make your payments. Most lenders allow you to manage your account online or through a mobile app, so you can make changes without contacting customer service.
What is a home improvement loan and how does it work?
A home improvement loan is usually an unsecured personal loan used to pay for home repairs and improvements. An unsecured loan does not require you to put up an asset, like your house, as collateral. improvement Loans can range from $1,000 to $100,000 and typically have a fixed interest rate and a fixed monthly payment. They are available from traditional banks, credit unions, online lenders and peer-to-peer lenders.
When you’re approved for a home improvement loan, you receive all funds up front, which you can then use to make your renovations. As soon as funds are disbursed, you’ll enter the repayment term, which can last anywhere from one to 15 years. During this time, you’ll make regular fixed payments on the loan, paying back the principal plus interest.
Types of home improvement loans and their uses
There are many types of loans that you can avail for home improvement. The most common are:
A personal loan is an unsecured loan, featured on this page, that can be used for any purpose.
- Who it’s best for: Personal loans are best for those who want to avoid using their home as collateral to secure a loan. Personal loans are also best for borrowers with good credit, as interest rates are based on your credit score.
- What to watch out for: Personal loans can come with high interest rates and fees, so make sure you shop around and pre-qualify with lenders before committing to one.
- When to start: You should start looking for a personal loan when you know how much you need to borrow and have a good idea of your credit health. Funds can be disbursed quickly and many lenders approve applications on the same or next day, so you should wait until you are ready to use the funds to apply.
- How to get started: Find out how much you need to borrow and start comparing lenders. Once you have selected a lender, proceed with the application process.
Home equity loan
Home equity loans are lump sum improvement loans that are mostly used for home related projects and needs. Your home is used to secure a home equity loan. Because of this, you can generally expect a lower interest rate than a personal loan.
- Who it’s best for: Home equity improvement loans are best for home owners who know how much they need to borrow and want to avoid high interest rate personal improvement loans.
- What to watch out for: Home equity improvement loans use your home as collateral, meaning you could lose your home if you don’t make payments.
- When to start: Before applying for a home equity loan, you should make sure you know exactly how much you need to borrow. Once you know what you want, it’s worth planning ahead and applying early. Home equity improvement loans typically require an appraisal and may take longer to get approved than personal improvement loans.
- How to get started: Once you know how much you need to borrow, you can start comparing lenders. Once you have chosen a lender, submit the application and follow the steps they indicate to complete the process.
Home Equity Line of Credit (HELOC)
A HELOC is a revolving line of credit secured by your home equity. You can take money as needed for household expenses instead of a lump sum. Your home is used as collateral for a HELOC and you will get lower interest rates because of it.
- Who it’s best for: HELOCs are best for people undertaking major home improvement projects who don’t have an exact idea of how much money they’ll need. A line of credit lets you borrow what you need when you need it and is ideal for projects that require flexibility.
- What to watch out for: Since you’re not applying for a specific amount, it can be easy to spend or take on more than you can afford. A HELOC is secured by your home, meaning you can lose your home if you don’t make payments. Make sure you’re only borrowing what you need and can pay back what you borrow.
- When to start: Getting a HELOC usually requires a home appraisal, so it’s a good idea to think ahead and apply for a HELOC before you start your home improvement project.
- How to get started: Start by comparing lenders and finding the ones that meet your needs. Once you have a good idea of what rates and terms you qualify for, choose a lender and apply.
What are the pros and cons of getting a home improvement loan?
- Get your loan proceeds faster than some secured forms of financing
- Pay in predictable fixed monthly payments
- Collateral like your house or vehicle is not required
- Home improvement loan rates can be higher than secured forms of financing
- Risk of default if your financial situation changes
- Paid as a lump sum (if you don’t know how much you’ll need it’s better to draw from the line)
How We Choose the Best Home Improvement Loans
Our team evaluated 38 lenders and collected 1,520 data points before choosing our top picks. We weighed more than 20 criteria and gave more weight to those with a more significant impact on potential borrowers.
The top picks were selected based on factors such as membership requirements (weighted 15%), average fixed APR (weighted 15%), and average origination fee (weighted 10%).
We also considered flexibility of repayment terms, helpful features like pre-qualification and whether co-signers or joint applications are allowed to ensure borrowers get the best possible experience. For more information on our selection criteria and process, our full methodology is available.
To select the top home improvement loan lenders, Bankrate considers 15 factors. These factors include credit requirements, APR ranges, fees, loan amounts and flexibility to account for a wide range of credit profiles and budgets. Of the lenders reviewed, 7 made Bankrate’s Best Home Improvement Loans list. Each lender has a Bankrate rating, which consists of three categories.
These categories include:
- Affordability: Interest rates, penalties and fees are measured in this section of the score. Higher scores result in lower rates and fees and fewer potential penalties.
- Availability: What is the minimum loan amount, its eligibility requirements and loan turnaround are considered in this category.
- Customer Experience: This category covers customer service hours, online applications if available, online account access and mobile applications.