A home improvement loan is money borrowed for the purpose of altering a home in some way. For example, basement refinishing, putting in a new kitchen, repairing a hole in a roof and adding a swimming pool are all examples of home improvement expenses for which a loan may be necessary. Some places (such as Home Depot) may offer loans specifically for home improvements. But most of the time, a borrower will fund home improvement expenses using either a personal loan or a home equity loan.
You can use a personal loan for almost any expense. And home improvement costs are no exception. If you are approved for a personal loan, you will receive a lump sum of money that you can use to pay for your project(s). After that, you will need to make monthly payments until the loan is paid off with interest. Personal loans range from as small as $1,000 to as large as $100,000. So you should be able to find some that will cover almost any home improvement expense you’re planning. Depending on your credit and income, among other considerations, you can expect APRs ranging from 6% to 36%. And payoff periods range from 12 to 60 months (occasionally 84 months or longer).
Another way to get a home improvement loan is by tapping in to your home’s equity. As with a personal loan, a home equity loan provides cash up front and requires monthly payments. But unlike personal loans, which usually have no collateral, home equity loans use your house as collateral. That means there’s a risk of foreclosure if you fail to pay back the loan. Because of this collateral, home equity loans have the potential to be cheaper than personal loans, with APRs around 4% to 8%. In addition, you may be able to borrow larger amounts of money because the maximum loan size is tied to your house’s value (minus the mortgage balance).
A home improvement loan usually requires a credit score of at least 660 if it’s a personal loan, though some lenders work with people who have lower scores. If your home improvement loan is a home equity loan, you’ll typically need a credit score of 680, according to Experian.
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