Are you planning to tackle another big project on your honey-do list this summer? You’ll likely need thousands of dollars to get the job done.
Research shows Ontario homeowners spend more than $13,000 on house renovations in one year.
A home improvement personal loan can help you fund your next home remodel or renovation project. Let’s explore the pros and cons of a personal loan for home improvement.
Home Improvement Personal Loan
Home improvement loans are personal loans available through online lenders, credit unions, or banks. These loans are typically smaller than home mortgages.
You’ll likely pay these loans back plus interest over time. Interest is the cost of borrowing someone else’s money. It’s usually a percentage of the amount you’re borrowing, called the principal.
Choosing a Personal Loan
Does it make financial sense to get a home improvement loan? It depends on a few factors. These include the following:
- Your project’s size
- Your project’s cost
- How much home equity you have
Home equity refers to your home’s market value minus any liens attached to the property. Liens are claims placed on your property. A lien gives a creditor, a person you’ve borrowed money from, the right to sell your home if you don’t pay your debt back.
The more mortgage payments you make, the more home equity you have.
Consider getting a home equity loan if you have enough equity in your home to fund your home renovation.
A home equity loan often has a lower interest rate compared with other types of loans. This makes it a cheaper alternative to a personal loan.
Home equity loans might also be tax deductible, meaning you can remove them from your taxable income. This may lower the amount you owe in taxes.
A home equity loan is also a secured loan, meaning it’s secured by the house’s value. A personal loan is unsecured.
Unsecured loans have a few drawbacks. You’ll typically need to pay them back more quickly, and their interest rates are often higher since they’re riskier than secured loans. It might also be harder to get a large unsecured loan compared with a large secured loan.
When to Use Personal Loans
An unsecured personal loan for home improvement can be handy for a mid-sized or small home project. Use this type of loan to makeover a room or install new windows.
A home equity loan may be more appropriate for a larger project.
Benefits of Personal Loans
Personal loans offer several benefits over home equity loans. Let’s explore these advantages here.
Not Losing Your House
A major reason to choose a personal loan for home improvement is you won’t be at risk of losing your house.
If you get a home equity loan and can’t repay it, your lender may foreclose. That’s because your house secures the loan.
A lender providing an unsecured personal loan may still put a lien on your house if you can’t repay them. This may make refinancing or selling the home more difficult. However, you won’t lose your home.
Reliable Monthly Payment
Another reason to choose a personal loan is that you’ll receive a predictable payment each month. Personal loans come with fixed interest rates, so your payments will remain the same. This will make repaying the loan easier.
Fast Funding
Personal loan providers can also deliver your funds to you quickly.
Applying for personal loans is usually a fast, seamless process. Many lenders offer next-day or same-day funding so you can start your home improvement project right away.
Control Borrowing
Controlling your borrowing may also be easier with a personal loan versus a home equity line of credit, or HELOC. A HELOC is similar to a home equity loan in that it’s tied to your house. It’s different in that it’s a revolving credit line, similar to a credit card.
When you choose a HELOC, you may keep borrowing for over 10 years. Personal loan amounts are fixed once you’re approved for the loans. This makes personal loans a safe choice if you want to limit your borrowing long-term.
Fewer Fees
Another reason to choose personal loans is that they have fewer fees than home equity loans.
You may have to pay an origination fee with a personal loan, but you won’t have to pay closing costs like you would with a home equity loan.
Drawbacks of Personal Loans
A major drawback of a personal loan is that you might have a hard time qualifying for one if your credit score isn’t good or your income isn’t high enough. A home equity loan might be simpler to get since your home will serve as collateral.
As we mentioned earlier, another disadvantage of a personal loan is that you may pay a higher interest rate than you would with a home equity loan or HELOC.
Personal loans also have fixed repayment timelines, so you’ll have to make the same payment every month. A HELOC provides more flexibility because it usually requires interest payments only upfront.
How We Can Help
A home improvement personal loan offers several benefits. You won’t be at risk of losing your home with this type of loan compared with a home equity loan. You can also receive the funding quickly and receive a consistent monthly payment.
At Kingcash, we take pride in offering high-quality, easy-to-use money lending services for quick and instant $500 – $750 loans in Canada. Get in touch with us to learn more about our loans, and apply today!
