A homeowner’s first instinct may be to get a home equity loan or line of credit when they need money for a home improvement project. But in some cases, a personal loan could be a better choice.
With a personal loan, you know your total borrowing costs at the time you take out the loan, and you’re borrowing a fixed amount for a certain number of years with a fixed interest rate. To determine whether or not you should get a personal loan for home improvements, consider your priorities when it comes to interest rates, secured versus unsecured borrowing and tax benefits.
Should I get a personal loan for home improvements?
A personal loan can be a great way to finance a small to mid-sized home improvement project, like new windows or a room makeover. Whether or not a personal loan is the right fit for your next project really comes down to one thing: your financial health and history.
Before applying for a personal loan to finance your next project, it’s important to know both the benefits and the potential downsides. Here are a few examples to be aware of.
- You won’t risk losing your home. If you can’t repay your home equity loan or HELOC, your lender can eventually foreclose, since these loans are secured by your home. While unsecured creditors can place a lien against your home if you don’t pay them – something many consumers are unaware of – the lien usually just makes selling or refinancing more difficult. It won’t get you kicked to the curb like a foreclosure will unless the creditor gets a writ of execution from a judge to force the sale of your property, which isn’t likely.
- It’s easier to keep borrowing in check.