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Updated on Sunday, August 30, 2020
Home improvements can boost the value of your home and make it a better place to live, but coming up with the money for costly home remodels can be challenging. There are a number of ways to fund your renovation or repair project, including home improvement loans.
Learn all about home improvement loans, compare lenders and consider your alternatives to determine the best approach for your financial situation.
What is a home improvement loan?
A home improvement loan is simply a personal loan that’s used to pay for a home improvement project. Personal loans are lump-sum loans that are repaid in fixed monthly payments over a set period of time, typically lasting from 12 to 60 months.
How do home improvement loans work?
Unlike a home equity loan or home equity line of credit (HELOC), home improvement loans are unsecured, meaning that your home will not be used as collateral for the loan. So when you choose a personal loan for home improvement instead of home equity, you don’t risk losing your home. However, failure to pay a personal loan would result in a drop in your credit score and possibly court-ordered wage garnishment.
Because they’re unsecured and seen as a riskier investment by the lender, home improvement loan interest rates tend to be higher than home equity loan interest rates and HELOC interest rates. Plus, it may be difficult for consumers with little to no credit to qualify for a personal loan at all.
13 personal loans for home improvement
When determining which home improvement loans to showcase for this article, we analyzed lending platforms based on APR (annual percentage rate), loan length and loan amount, but we also weighed factors like no-fee loans and fast funding methods.
|13 home improvement loans|
|APR||Loan length||Loan amount|
|Avant||9.95% to 35.99% APR||24 to 60 months||$2,000 to $35,000|
|Best Egg||5.99% to 29.99% APR||36 or 60 months||$2,000 to $35,000|
|Discover Bank||6.99% to 24.99% APR||36 to 84 months||$2,500 to $35,000|
|LendingClub||10.68% to 35.89% APR||36 or 60 months||$1,000 to $40,000|
|LightStream||3.99% to 19.99% APR with AutoPay discount||24 to 144 months||$5,000 to $100,000|
|Marcus by Goldman Sachs®||6.99% to 19.99% APR||36 to 72 months||$3,500 to $40,000|
|OneMain Financial||18.00% to 35.99% APR||24 to 60 months||$1,500 to $20,000|
|PenFed Credit Union||6.49% to 17.99%||60 months||$500 to $20,000|
|SoFi||5.99% to 18.28% APR with 0.25% AutoPay discount||24 to 84 months||$5,000 to $100,000|
|SunTrust Bank||4.99% to 16.49% APR with 0.5% AutoPay discount||24 to 144 months||$5,000 to $100,000|
|Upstart||7.98% to 35.99% APR||36 or 60 months||$1,000 to $50,000|
|USAA Bank||Varies||12 to 48 months||$2,500 to $50,000|
|Wells Fargo Bank||5.74% to 24.49% with 0.25% relationship discount||12 to 84 months||$3,000 to $100,000|
Best overall: SoFi
With consistently low APRs, no fees and fixed repayment terms, SoFi offers some of the best personal loan products available on the market. To qualify for the lowest APR, borrowers should have excellent credit. Borrowers with credit scores around 800 are more likely to get their best available terms.
SoFi stands apart from other lenders by offering a wide array of member benefits, such as the Unemployment Protection Program, which allows borrowers who lost their job to suspend monthly payments in three-month increments for up to 12 months. (Unpaid interest will continue to accrue during this period.) Other benefits include free financial advice, estate planning and career coaching.
- No fees
- High funding limit ($100,000)
- Funding is slower; available in 7 days, on average
- Low APRs, starting at 5.99% with 0.25% AutoPay discount
- Unique member benefits like Unemployment Protection Program, no-cost financial planning and estate planning
Lowest APR: LightStream
LightStream is a completely online personal loan lender brought to you by Truist. In order to offer competitive rates and terms, LightStream is strict with approvals, making it an option for excellent-credit borrowers.
LightStream also offers a high max loan amount of $100,000, with terms from 24 to 144 months. This makes LightStream an ideal option for borrowers who want to tackle large-scale home renovation projects and need a significant amount of funding to meet their needs.
- No fees
- High funding limit ($100,000)
- Long-term loans, 24 to 144 months
- Fast funding, same-day funding available
- Low APRs, starting at 3.99% with 0.5% AutoPay discount
- Typically reserved for borrowers with good to excellent credit
Best bank loan: Wells Fargo
Current Wells Fargo banking customers could consider seeking home improvement funding through the bank to take advantage of a 0.25% APR customer relationship discount. To qualify, you must have a Wells Fargo consumer checking account and make automatic payments from a Wells Fargo deposit account.
Like any other lender, Wells Fargo reserves the lowest APRs for excellent-credit borrowers.
- High funding limit ($100,000)
- No origination fee or prepayment penalty
- Fast funding, as quickly as the next business day
- Low APRs, starting at 5.74% with 0.25% customer relationship discount
- APR discount is limited to Wells Fargo banking customer with direct deposit
Best for low-credit borrowers: Upstart
Nobody was born with good credit. Upstart recognizes that your credit score isn’t the only factor that goes into your eligibility as a borrower, which is why the lender also analyses things like level of education, field of study and employment history.
That doesn’t mean that low-credit borrowers will get favorable terms on a personal loan for home improvement. Borrowers with low to no credit will end up paying higher APRs, which will increase the cost of borrowing.
- APR can be as high as 35.99%
- Fees can include an origination fee and late payment fee, among others
- Fast funding, with 99% of approved applicants receiving money within one business day
- Upstart looks at more than just your credit score, including education and job field
Best small loans: PenFed Credit Union
DIY renovators who just need a few hundred dollars to help fund their project could consider PenFed Credit Union, which offers personal loans with smaller minimum amounts. PenFed also offers low APRs for borrowers with excellent credit, and rates are capped at 17.99%.
Potential PenFed personal loan borrowers will need to join the credit union in order to borrow. Click here to learn more.
- Low APRs, starting at 6.49%
- Fast funding, as quickly as the next day
- No origination fee or prepayment penalty
- Loans as small as $500 to tackle small home improvement projects
- Must join PenFed Credit Union in order to open a home improvement loan
Choosing the best home improvement lender for you
It seems like there’s a virtually endless array of online lenders out there, and choosing one may feel like a daunting prospect. But this increase in choice means that you can compare offers from multiple lenders to get the best possible personal loan for your home improvement needs and unique financial situation.
Online loan marketplaces, such as the one from our parent company, LendingTree, let borrowers compare personal loan offers from lenders in minutes (depending on eligibility). Once you have a few offers in-hand, here are three things you should look for to choose the right personal loan lender for you:
When comparing personal loan offers, you’ll generally want to choose the lender that offers you an affordable APR for your credit profile. The APR represents the total annual cost of a loan, including interest rates and fees. The lower the APR, the lower the loan will cost you in borrowing fees.
Some personal loan lenders charge a number of fees throughout the borrowing process, including:
- Loan origination fee: A fee charged when you take out the loan, typically ranging from 1% to 8% of the total cost of the loan.
- Prepayment penalty: A fee charged when you pay off your loan before the term reaches maturity.
- Late payment fee: A fee charged when you miss a personal loan payment.
However, there are a few lenders out there to choose from, such as SoFi and LightStream that have little-to-no fees. Always check fee structures when comparing home improvement loans.
Before working with a lender, search for lender reviews to get feedback from current and past borrowers. Reviews can shine a light on things that may not be apparent on the lender website, such as customer service quality and the application process.
Is a home improvement loan right for you?
For some borrowers, a home improvement loan may be their best way to finance a home remodel. Before you commit to one financing tool, though, you should get to know it inside and out. Weigh the pros and cons of personal loans to determine if this is your best way to fund your renovations.
Alternatives to a home improvement personal loan
|Home improvement loan benefits and drawbacks|
|Unsecured financing. This means you won’t have to put up your home as collateral and risk losing it if you default on the loan.||High interest rates. Personal loans are backed only by your promise to repay the lender, making them riskier (and more expensive) for lenders.|
|Fast funding. Some online personal loan lenders can deposit funds into your account on the same day, while others may take just a few days.||Potential fees and penalties. Some personal loan lenders charge origination fees, prepayment penalties and late fees.|
|Fixed APR and monthly payments. When you take out a personal loan, you’ll always know how much you owe every month.||No tax benefits. When you borrow a home equity loan for home improvements, the interest you pay may be tax-deductible.|
A personal loan may not be the best way to pay for home improvements, depending on your financial situation. Check out these alternative ways to finance your home renovation project to determine the best option for your needs.
Budgeting and paying in cash
When possible, it’s ideal to pay for home renovations without borrowing money. That may mean putting together a budget and that you don’t get to complete your home renovations on a fast timeline. But it also means that you don’t have to pay interest or other borrowing fees.
However, it may not be practical to wait around while your home improvement piggy bank fills up over months or years. If you need money for urgent home repairs, or if you’re moving soon and want to add to the value of your home, then budgeting in paying in cash may not be an option.
Home equity loans and HELOCs
If you’ve owned your home for some time and have been paying a significant amount of money into your mortgage, then you may be able to borrow from your own home equity.
Home equity loans and home equity lines of credit (HELOCs) are similar lending products that use your home as collateral. Using your home as collateral may grant you lower interest rates than your typical personal loan, but it also means that you risk losing your home if you can’t repay the loan.
Learn some of the key differences between home equity loans and HELOCs in the table below.
|Quick comparison: Home equity loans vs. HELOCs|
Home equity loans
You can use a home equity calculator to estimate how much equity you have in your home and how much you may be eligible to borrow.
FHA Title 1 loan
Borrowers who may not qualify for a traditional home equity loan or a personal loan for home improvement may seek out loans that are insured by the Federal Housing Administration (FHA).
These loans can only be used to make your home livable; they cannot be used for cosmetic upgrades or luxury purchases, such as a swimming pool. Common uses for an FHA Title 1 loan include installing new flooring or roof, plumbing jobs or to make the home accessible.
FHA Title 1 loans are offered through private lenders and backed by the federal government to help low- to moderate-income homeowners finance home improvements. They’re also an option for homeowners who don’t yet have equity in their home.
Here are a few quick facts about FHA Title 1 loans:
- Interest rates: Fixed rate, based on the common market rate in the area
- Collateral: Loans over $7,500 must be secured by a mortgage or deed
- Prepayment penalty: No prepayment penalty for FHA Title 1 loans
You can search for FHA Title 1 loans on the US Department of Housing and Urban Development’s website.
Introductory 0% APR credit card offer
Borrowers with good to excellent credit who need fast funding for their home renovation project might consider taking advantage of a credit card with an introductory 0% APR offer, typically lasting up to 21 months. This gives homeowners the freedom to purchase the materials they want on an as-needed basis without paying interest, as long as the amount is paid in full by the time the promotional period ends. Interest will be charged on the remaining balance once the introductory offer expires.
Another drawback to consider: Consumers with poor or fair credit will not likely qualify for a credit card that has a 0% APR introductory offer. Plus, the limit on a credit card may be far lower than what’s needed to finance a large-scale home improvement project.