Whether you need funds for new windows, a revamped garage, or a kitchen makeover, one of your best options is to take out a personal loan that you can use for making home improvements.
You might simply want to give your home a facelift or you might be intending to increase the value of your home by completing a renovation project.
But before you apply for a personal loan, you should examine the pros and cons.
The Cons of Taking Out a Personal Loan That You Should Consider
Most people like hearing the bad news first, so let’s begin by looking at the potential downside of taking out a personal loan for a home improvement project.
1. A Personal Loan Could Negatively Affect Your Credit Score
Depending on your specific financial circumstances, taking out a personal loan could negatively affect your credit score, your debt-to-income ratio, and your income level.
And if you already have a poor credit score, you may not qualify for a personal loan or you could end up worsening your credit rating.
However, if you have a good credit score and you’re able to pay back fixed amounts each month without it affecting your financial situation, this disadvantage doesn’t necessarily have to be a con.
2. You’ll Pay Higher Rates Than You Would with a Secured Loan
Most personal loans are unsecured.
That’s a plus in one way because it means you don’t have to put up collateral like your home in order to secure the loan.
But the downside is you’ll typically pay higher rates than you would with a secured loan.
3. You Won’t Have Payment Flexibility
Also, unlike secured loans, you won’t have payment flexibility.
With a personal loan, you’ll have a fixed repayment timeline as well as fixed interest rates, which means you’ll be locked into having to pay back the same amount each month.
The Pros of Taking Out a Personal Loan That You Should Consider
It’s not all bad news. In fact, there are plenty of advantages to taking out a personal loan for your home improvement project.
For instance, a personal loan may offer a much lower rate than you would pay with a credit card, and by shopping around, you can find a personal loan with low interest.
Other pros of taking out personal loans to pay for your home improvements include the following.
1. You’ll Pay Fewer Fees
Unlike home equity loans, there are no closing costs to pay with personal loans.
You may sometimes have to pay origination fees, but you won’t have to pay things like application fees, appraisal fees, insurance fees, filing fees, and early repayment fees.
2. You Can Better Plan Your Monthly Spending and Stay on Top of Your Finances
Although having a fixed repayment plan in place can be a negative because you have fewer flexible options, paying predictable monthly payments can also be advantageous because you won’t be hit by any unexpected costs.
When you know precisely how much you will repay throughout the term of the loan, it will be easier to plan your spending each month and avoid getting into debt.
3. You Could Get Your Funds Quickly
Lastly, if you want to get the funding for your home improvement project quickly, taking out a personal loan is your best option.
You can often get your funds fast.
Typically, you can receive the money as soon as your application is approved. Some lenders even provide next-day funding.
