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Home Improvement & Renovation

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Home Improvement Loan

As the name suggests, home improvement loans are geared toward improving your home. That might include projects such as adding a patio, redoing a bathroom or overhauling the kitchen. These projects — even something as simple as replacing a garage door or entry door — can ultimately increase the value of your home.

But while it sounds great to spruce up your property, it’s important to consider whether you can afford to take out a home improvement loan. Although the APRs (annual percentage rates) for home improvement loans typically are lower than they are for credit cards and other types of borrowing, you’ll still be making monthly loan payments on top of your mortgage. That’s in addition to all of your other household expenses.

To make it easier to decide whether a home improvement loan is right for you, we’ve put together this guide, which goes over the APRs for these types of loans, how you qualify and other details.

Looking for a home improvement loan? Compare rates.

Best home improvement loans for 2018

Before we dig deeper, let’s explain the nuts and bolts of a home improvement loan. Home improvement loans can actually refer to three types of loans: a personal loan, a home equity line of credit (HELOC) or a home equity loan.

To qualify for a personal loan, you don’t need to have equity in your home. This loan is unsecured, meaning that your home equity isn’t take into account and your home isn’t used as collateral.

Meanwhile, the amount you can borrow through a HELOC, or a home equity loan, is based on the home equity you’ve built up.

But HELOCs and home equity loans are not the same. The primary difference is that a HELOC is like a credit card — you can borrow up to the credit limit whenever you need the money, within a certain timeframe. A home equity loan is not like a credit card — you get all of the borrowed money at one time.

Another difference: A home equity loan (as well as a personal loan) comes with a fixed interest rate, but the interest rate for a HELOC fluctuates because you’re borrowing money at various times. APRs for personal loans and home equity loans tend to be higher than they are for HELOCs.

Here’s an example of a home improvement loan: A borrower with average credit who takes out a three-year, $17,000 loan with a 19.79% interest rate a 3% origination fee would receive $16,490 in proceeds ($17,000 minus the $510 origination fee), according to PrimeRates’ loan calculator, and would make 36 monthly payments of $629.96. This equates to an APR of 22.02% and total loan payments of $22,678.68.

Can you finance your home improvement project with a personal loan?

The short answer to this question is yes. But why would you take out a personal loan for home improvement projects rather than a HELOC or home equity loan?

Perhaps the biggest benefit of a personal loan for home improvements is that you don’t need to have any home equity at all to qualify. That something that HELOCs and home equity loans do require. (To figure how much home equity you’ve got, subtract the amount you owe on your mortgage from the appraised value of your home.)

Another advantage is that since a personal loan for home improvements isn’t based on home equity, your home isn’t used as collateral — this is known as an unsecured loan. With a HELOC and a home equity loan, your home is used as collateral — these are called secured loans.

Reasons for a home improvement loan

Whether it’s in the form of a personal loan, HELOC or home equity loan, there are several reasons to get a home improvement loan.

One of the major reasons is that for most Americans, a home is the biggest investment they’ll ever make. With a home improvement loan, you can undertake a project that can boost the value of your investment. This is especially true if home improvements, such as a kitchen upgrade or a bathroom makeover, are done before you put your home up for sale.

Another reason to take out a home improvement loan is that it’s usually less costly than putting all of your home improvement expenses on a higher-interest credit card. All of the extra interest you’d pay on your credit card would reduce the extra value you’d gain from a home improvement project.

Here are three of the best home improvement loans:

1. LightStream home improvement loans

Pros:

  • The APR is as low as 4.99% if you sign up for the autopay option.
  • You can qualify for up to $100,000.
  • LightStream will match the APR of any other lender by 0.10 percentage points if the other lender’s rate meets certain terms and conditions.
  • Loan terms are up to 12 years.
  • You can get your money the same day.
  • No fees or prepayment penalties are charged.

Cons:

  • Interest rates are higher on longer-term loans.
  • Interest rates are 0.50% higher if you don’t pick the autopay option.
  • Funds can be used only for something related to home improvement.
  • Only borrowers with good or excellent credit will qualify.
  • You must have a valid Visa or Mastercard credit card (for identity verification).

Full lender personal loan review

LightStream targets people with good to excellent credit. In determining whether you qualify for a loan, LightStream will pull credit reports from Equifax and
Experian. The lender doesn’t provide a range of credit scores that are needed to qualify. You’ll need to have a valid Visa or Mastercard (for identity verification) when applying.

If you do qualify for a LightStream loan, you’ll find that the APRs are competitive. For instance, a 36-month loan for $10,000 carries an APR of 4.99% to 11.99%, with monthly payments of $299.66 to $332.10. The money is available the same day you submit your application. 

The biggest benefits

With a starting APR of 4.99%, LightStream’s annual percentage rate is one of the lowest you’ll find from any provider of home improvement loans. On top of that, the range of repayment periods is broad — two to 12 years. And, of course, it doesn’t hurt that you can get your money the same day as you’re approved.

The drawbacks

One of the biggest drawbacks of LightStream is that it doesn’t offer loan preapprovals. In other words, the lender will do a “hard inquiry” to determine whether you’ll qualify for a loan, and that inquiry will show up on your credit report.

Another drawback: Someone with average or poor credit won’t qualify for a LightStream loan. In addition, you’ll need a valid Visa or Mastercard credit card for identity verification.

How it stacks up

If you have excellent credit, you’ll qualify for a loan with an APR that most other lenders can’t match. Plus, LightStream doesn’t charge fees or prepayment penalties.

Should you apply? 

Those with good to excellent credit are the best candidates for LightStream loans. It’s a particularly attractive option thanks to the low APRs and the range of available repayment periods.

How to apply

LightStream accepts online applications only. Visit the company’s website to apply.

Lightstream at a glance

APR range 3.09% — 14.24%
Available loan terms 24 — 144 months
Loan amounts $5,000 — $100,000
Time to fund As soon as the same day
Origination fee None
Credit score needed Typical borrower’s score is 660
Income needed N/A
Best for People with good or excellent credit

Shop for a loan from Lighstream.

2. Avant home improvement loans

Pros:

  • People with lower-than-average credit scores can qualify for an Avant loan. The typical credit score of an Avant borrower is 600 to 700.
  • The income requirement is fairly low, with the typical borrower having average annual income of $40,000.
  • Money from your loan is available as soon as the next business day following approval.
  • The lowest APR is 9.95%, which is less than the typical APR for a credit card. 

Cons:

  • For someone with especially bad credit, the APR can be as high as 35.99%, in addition to a 4.75% administration fee.
  • The range of loan amounts is narrow — $2,000 to $35,000.
  • The range of loan repayment periods is narrow — 24 to 48 months.

Full lender personal loan review

Avant targets people with poor to bad credit. The company will verify your income and employment before deciding whether to approve your loan application, and will pull your credit reports and examine your credit history.

Here’s an example of how an Avant loan works: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33.

Money is available as quickly as the business day following approval of your loan.

The biggest benefits

Avant’s loose requirements make its loans ideal for people with poor to bad credit. In addition, the lowest APR available (9.95%) is considerably lower than the typical APR of a credit card, and far better than the typical APR for a payday loan or car-title loan.

The drawbacks

Depending on your credit history, you could be hit with an extremely high APR (up to 35.99%). Furthermore, Avant charges loan origination fees of 1.5% to 4.75%, which raises the cost of borrowing money. Another drawback: Avant is pretty stingy with loan amounts and loan repayment periods.

How it stacks up

Overall, Avant can’t beat the APRs and loan terms of other lenders. But it’s one of the best options for borrowers with poor to bad credit who are seeking a home improvement loan.

Should you apply? 

If you’ve been rejected by other lenders, Avant might be your best bet, thanks to its relaxed lending requirements.

How to apply

To check your loan options, visit avant.com and provide your name, address, income information and Social Security number. Avant accepts applications online only.

Avant at a glance

APR range 9.95% — 35.99%
Available loan terms 24 — 60 months
Loan amounts $2,000 — $35,000
Time to fund As early as next business day
Origination fee 1.5% — 4.75%
Credit score needed 580
Income needed Typical borrower has annual income of at least $40,000
Best for People with poor or bad credit

Shop for a loan from Avant.

3. Prosper home improvement loans

Pros:

  • Prosper lends money to wide range of people, from those with fair credit to those with excellent credit. You’ll need a credit score of at least 640 to qualify, but most borrowers have credit scores above 700.
  • The lowest APR available is an attractive and competitive 5.99%, which is much less than the typical APR for a credit card.
  • There are no fees or prepayment penalties.
  • Checking your rate won’t affect your credit score.

Cons:

  • Prosper evaluates each loan application through a proprietary rating system, which makes the approval process slightly mysterious.
  • The window of loan amounts is just $2,000 to $40,000.
  • Loan repayment periods are restricted to three or five years.
  • Prosper charges origination fees of 1% to 5%.

Full lender personal loan review  

Prosper targets people with fair to excellent credit. It uses its own credit-scoring system, coupled with traditional credit scores, to decide whether to approve an application.

Here’s how your loan might look:

  • A three-year, $10,000 loan with the top Prosper rating of AA would have a 5.99% APR and a 1% origination. You’d receive $9,900 and make 36 scheduled monthly payments of $302.
  • A five-year, $10,000 loan with a Prosper rating of A would have a 9.88% APR and a 5% origination fee. You’d receive $9,500 and make 60 scheduled monthly payments of $201.28.

The biggest benefits

Prosper’s loans are available to people with a broad range of credit histories. Also, the lowest APR available (5.99%) is much better than the normal APR of a credit card. 

The drawbacks

Depending on your credit history, you could be hit with a hefty APR (up to 35.99%). In addition, Prosper’s origination fees are 1% to 5%, adding to the cost of your loan. Meanwhile, loan repayment periods are limited to three or five years.

Fair warning: If your credit score is below 640, Prosper won’t lend money to you.

How it stacks up

Prosper’s APRs aren’t the lowest on the market, but they are relatively competitive, especially for those with excellent to good credit.

Should you apply? 

If you have solid credit, you’ve got a great shot at nabbing a low APR. An it’s worth applying. But if your credit is lacking, you might be stuck with an APR as high as 35.99% and have better luck with another lender. 

How to apply

Visit prosper.com to check interest rates without affecting your credit score. Prosper operates only online.

Prosper at a glance

APR range 5.99% — 35.99%
Available loan terms 36 or 60 months
Loan amounts $2,000 — $40,000
Time to fund One to three days
Origination fee 1% — 5%
Credit score needed 640
Income needed No established minimum
Best for People with fair to excellent credit

Shop for a loan from Prosper.

 

Home equity lines of credit (HELOCs) and home equity loans

A HELOC acts like a credit card. You qualify for a certain amount of credit, and then borrow against that line of credit when you need it. For instance, you might be approved for a $15,000 line of credit but need only $5,000 right now. Later on, you typically can tap into the remainder of the line of credit. Since you’re borrowing different amounts of money over time, the APR will fluctuate based on when you draw money.

With a home equity loan, you borrow money in one lump sum and repay it with one fixed APR.

Normally, you can withdraw money from a HELOC over a five- to 10-year period and repay the borrowed money over a 20-year period. The repayment period for a home equity loan can last five to 30 years.

When to consider a HELOC or home equity loan

To summarize, consider a HELOC or home equity loan if:

  • You’ve got equity in your home (meaning the appraised value is higher than the amount you owe on your mortgage).
  • You’re OK with putting up your home as collateral.
  • You’d like to enjoy the tax-deduction benefits (which you won’t get from a personal loan).
  • You’d like to be able to borrow money as you need it (which you can do with a HELOC).
  • You’re looking for an APR range that’s typically lower than the range for a personal loan.
  • You want to take more time to pay off the loan.

 

Finding the best home improvement loan

Before you shop for a home improvement loan, consider how long you’ll be staying there. If you’re planning on moving in a year, it might not make financial sense to get a home improvement loan. But if you’re going to be there longer — five years, for example — you’re more likely to see the financial payoff .

No matter whether you’re seeking a personal loan, HELOC or home equity loan to pay for home improvements, carefully consider whether you can afford the extra financial burden. Will another monthly payment stretch your budget too thin?

If you’re satisfied that your budget can handle another loan payment, then you need to look at which loan option is best for you. Always be sure to weigh the APR, fees, loan amount and loan repayment period before signing a loan agreement. And if you choose a HELOC or home equity loan, make sure you’re comfortable with your home serving as collateral for the loan.

Start Shopping for a Home Improvement Loan

Which lender is right for me?

PrimeRates has reviewed more than 15 lenders to help you compare. Here are the most popular personal loans.
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Upgrade personal loan review
Payoff personal loan review
Avant personal loan review

Some typical Home Improvement Projects include:

  • Hardwood Floors

    Hardwood Floors

  • Bathroom Remodel

    Bathroom Remodel

  • Pool Addition

    Pool Addition

  • Window Replacement

    Window Replacement

  • Outdoor/Landscape

    Outdoor/Landscape

  • Kitchen Remodel

    Kitchen Remodel

  • Roof Replacement

    Roof Replacement

  • Garage Improvement

    Garage Improvement

Other Uses of Personal Loan

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