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Home Improvement Loan or Personal Loan – which one is better?

Personal Loan or Home Improvement Loan-That is the question.

There are various phases in our lives when maybe we’ve spent too much time watching TV and thus have built castles in the air of visions of turning our kitchen into a chef’s paradise. Or perhaps our master bath is just one shower away from a disaster.


And if so, then cheers you’re not alone. Recently, the Joint Center of Housing Studies for Harvard University has investigated and reported that the home improvement industry should continue post record-level spending in 2016.  Many people borrowing money to pay for the well planned home improvements and home decorating schemes.


Now, one is have to face a tough and difficult and perhaps hypothetical question. Which home improvement loan is right for you?


Many homeowners and homemakers look to tap the equity in their homes. But home equity loans or home equity lines of credit may not be possible or very practical for some borrowers. In that case, one should consider using a personal loan.


While it is known that one can use a personal loan for a variety of reasons, there are a few reasons why a personal loan can have advantages over home equity loans when it comes to a renovation loan, to be specific. 

Home improvement loan or personal loan


Personal loan are quite simple and have fewer fees.

The application process for a personal loan is usually quite simple and straightforward. Your own financial situation—for example, your credit history and earning power; this is often the main deciding factor for whether or not you will be able to get a loan, for how much, and if so, at what interest rate. Some personal loans even boast of having no origination fees.

However, home equity loans or home improvement loans on the other hand, are alike to applying for a mortgage (in fact, home equity loans are sometimes called second mortgages). How much you can borrow depends on several factors, including the value of your home. Because you can only borrow against the equity you already have (i.e. the difference between your home’s value and your mortgage), you may have to arrange and pay for a home appraisal. Click here to read about Home construction loan.


You can renovate your home right away.

With a home equity loan or a home equity lines of credit loan, you can only borrow against the equity you have which, as a new homeowner, is probably not much. You maybe have not had enough time to chip away at your mortgage and the market has not yet raised up your home’s price. A personal loan lets you start home improvements regardless of how much equity you have.


Home is not on the risk.

With a home equity loan, you use your home as security, which means an inability to repay could result in your home going into foreclosure. While failing to pay your personal loan carries its own risks (like ruining your credit and credit score), it is not tied directly to the roof over your head, like a gun on your head. Therefore, it is better and safer to avail of a personal loan.


On the other hand, personal loans can make sense for these types of customers:-

Recent home purchasers.

Smaller home improvement loans (e.g., bathroom or kitchen as opposed to full remodel)

Borrowers in lower home value markets (if your home value has barely budged since you moved in, you may not have much equity to draw on for a home equity loan).

For those who value ease and speed.

Borrowers with great credit and cash flow.



Personal loans may not be right for every borrower looking for a home improvement loan. For example, if you have significant equity in your home and are looking to borrow a large amount, you might be able to save money with lower interest rates on a home equity loan. Also, interest payments on home equity loans and lines of credit can be tax deductible under certain circumstances; but that is clearly not the case with personal loans. Click here to read about Tax benefits on home loan.



So, we conclude that a personal loan is a better option than a home improvement loan, anytime.


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