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Unsecured Home Improvement Loans: Everything You Need to Know

Unsecured Home Improvement Loans: Everything You Need to Know
Jennifer Calonia
Jennifer CaloniaUpdated October 27, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Home improvement projects are on the rise. In 2021 alone, US homeowners completed nearly four home improvement projects at an average cost of $2,800 each.While many home improvement projects are necessary for maintenance or help to upgrade a home, the cost of these projects can add up. Loans to improve a home are a financing option that help you spread the cost of renovations over an extended period. Learn more about how these loans work and what you need to qualify.

What Is an Unsecured Home Improvement Loan? 

A home improvement loan is one of the many personal loan types. Unlike a home equity loan or home equity line of credit (HELOC), home improvement loans are unsecured, which means they do not require you to use collateral, like your house, to secure the loan.Lenders look at your credit score, income, and the existing debt you have to determine whether to approve you for a loan. Because these loans don’t have collateral to back them, you may have to satisfy more rigorous loan requirements to get approval, such as having a higher credit score.

Pros of Unsecured Home Improvement Loans

Getting funds for your next home project is just one of the advantages of an unsecured home improvement loan. Other pros include:

Timely Funding

The turnaround time to receive funds with a loan is typically faster than it is with many other financing options. Certain lenders, like online banks, are often able to approve your loan on the same day and get your money to you by the following business day. 

No Minimum Equity Required

Secured home improvement loans require collateral, such as your home, to back them. You typically need to have at least 20% equity in your home to qualify. With a home improvement unsecured loan, however, equity is not an issue since no collateral is involved. 

Limited Fees

Unsecured home improvement loans generally have fewer fees, compared to other home improvement financing options. You may have to pay an origination fee or a late payment fee, but you’ll avoid costs such as appraisal fees, title search fees, and more.

Cons of Unsecured Home Improvement Loans 

Along with the advantages and uses of a personal loan, there are caveats to consider as well.

High-Interest Rates

Unsecured loans typically have higher interest rates than secured loans because they have no collateral to back them. 

Small Loan Amounts 

The limits on unsecured home improvement loans vary by lender, with some offering a maximum of $20,000.  If you’re taking on multiple home improvement projects simultaneously or planning a significant renovation, you might find that a home improvement unsecured loan doesn’t offer you enough funding.

Credit Score 

A credit score that’s considered “good” or above is ideal for an unsecured home improvement loan. The lower your credit score the more difficult it will likely be to get a competitive interest rate.

Short-Term Loan

The repayment term for a home improvement unsecured loan is generally short, which means your monthly payments may be higher. Loan terms may be as short as two to five years. Other financing options offer longer repayment terms. For example, a home equity loan might offer a 10- to 30-year term, while a home equity line of credit HELOC generally gives homeowners up to 20 years to repay the debt.

Unsecured Home Improvement Loan vs. Secured Home Improvement Loans 

When choosing whether to pursue an unsecured home improvement loan or a secured loan, consider the parameters of your home improvement project. For example, if it’s a project that needs to be done quickly and it doesn’t require a high borrowing limit, a home improvement unsecured loan might make sense. However, if your home repairs are more expensive, considering the fact that the average cost of a home renovation can be significant, or you need a financing option that offers a longer repayment period, a secured home improvement loan might be a better choice.Additionally, evaluate the interest rates, fees, and terms of any loan you’re considering to determine whether they’re manageable and realistic for your budget.

Alternatives to Unsecured Home Improvement Loans

Other options to an unsecured personal loan for your home improvement project include: 

Secured Personal Loans 

Secured personal loans requires collateral, like your home or other high-value asset. You may be able to get a lower interest rate and a larger loan amount with a secured loan.However, if you fail to repay a secured loan, the lender can repossess your collateral.

Credit Cards 

A credit card can be an easy and convenient way to pay for a home improvement loan. They often have lower borrowing limits, so they can be best for smaller home improvement projects. However, credit card interest rates are significantly higher than the rates of unsecured home improvement loans. Pay your credit card statement in full before the end of your next billing cycle, and you can avoid paying interest. Or you can apply for a credit card with a promotional 0% APR, which may last for 6 to 12 months or even longer. As long as you pay off your debt before the promotional period ends, you won’t owe interest.

Cash

If your home improvement project doesn’t need to be done urgently, you can save up cash to pay for it. This way, you’ll avoid financing charges altogether. However, it may take you a long time to save enough money. Plus, it’s best not to completely drain your savings in case of an emergency. 

Personal Loans for Home Improvement 

If you have a home improvement project you’re eager to get started on, but you don’t have the money to pay for it upfront, an unsecured home improvement loan might be an option to consider so you can get your funds quickly. However, be aware that these loans typically have a shorter repayment period and higher interest rates.It’s important to shop around for the best personal loan for your needs. Lantern by SoFi can help. By filling out one simple form, you can compare personal loan rates and terms from multiple lenders quickly and easily to find the right one for your home improvement project.Check your rate with Lantern today!
Photo credit: iStock/EricVega
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Frequently Asked Questions

What are home improvement unsecured loans?
Are home improvement unsecured loans easy to get?
Does a home improvement unsecured loan require collateral?

About the Author

Jennifer Calonia

Jennifer Calonia

Jennifer Calonia is a Los Angeles-based finance writer who has covered the gamut, including student loans, credit card rewards, consumer loans, and debt. Her work has been featured in outlets like Bankrate, NerdWallet, Business Insider, Yahoo Finance, and U.S. News.
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