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A home improvement loan is a type of personal loan that’s used specifically for home renovations or related expenses. You can take out a home improvement loan from banks, online lenders and credit unions. While some won’t have them labeled as such, most will allow you to use a personal loan to cover the cost of the renovations.
The application process is relatively fast, especially when completed online. Unlike home equity loans, personal loans for home improvement are often unsecured and are based solely on your credit profile. Those with excellent credit and a steady income are most likely to get approved, but some lenders cater to applicants with bad credit.
To increase your approval odds, follow these steps when applying for a home improvement loan.
Once you know what type of loan you need, you will need to compare lenders to get the best home improvement loan. Consider interest rates, borrower requirements, fees and loan terms. These will all impact the overall cost of your loan.
The maximum amount you can borrow should also be a factor in your decision. A credit card probably won’t be enough if you need to fund a large renovation or project. If this is the case, a loan that uses your home equity — and gives you a decade or more to pay it off — will be the better choice in the long run. Likewise, a small project could be financed with a credit card you already have if taking out another loan doesn’t make the most sense in the situation.
Almost every lender has the same general requirements. You will need to submit a few basic pieces of information about yourself to get started, including:
Your current debts, housing payment and total income could also affect the rates and terms you qualify for, so keep this information handy. Compare lenders and research their unique application and documentation requirements to make this process as pain-free as possible.
Take advantage of lenders that offer a prequalification process. This gives you a quote that allows you to preview your approval odds, predicted interest rate and the total cost of your home improvement loan. Plus, prequalifying doesn’t require a hard credit check, so you won’t have to worry about it impacting your credit score when shopping for the best rate.
You can apply for prequalification with multiple lenders at one time to simplify the comparison process. This way, you can see how much you can borrow, what it will cost and if it will cover your project without having to sign any official paperwork.
While it’s always a good idea to prequalify, it is doubly so if you have bad credit. Bad credit loan rates are often higher than rates for those with better credit profiles, so finding the best deal is especially important.
Once you’ve compared lenders, you’ll need to begin the official application process with your top choice. Online lenders — and most banks — have an online application, but some banks or credit unions may require that you complete the process in person or become a member first.
If you get approved, your lender will send you the final documents and loan agreement. Read through the agreement carefully before signing off on it. Make sure you’re familiar with every fee charged and that there are no clerical errors.
Once you sign the loan documents, the lender will deposit the funds into your chosen bank account. You will then be able to spend the money as you need it and will start making the payments as set by your repayment schedule.
Each lender has its own eligibility requirements, which can also vary depending on the type of home improvement loan you’re applying for. That said, these are some common factors to consider.
Besides these, you’ll need to have a valid bank account and be a US citizen or permanent resident to apply for most home improvement loans.
Home improvement loans are good if you have a smaller to midsize project that will increase the value of your home. They’re also a financing option if you’re tight on money and have to make an unexpected repair that’s not covered by your homeowners’ insurance, or that you need to cover before the insurance payout comes in.
For larger projects, such as a full kitchen remodel or adding insulation to an old home, consider the monthly costs and whether you can reasonably afford the loan. Look at your future financial goals as well as your current situation to make an informed decision.
However, if after crunching the numbers you realize that the payments tighten your budget too much, it may be better to wait. If possible, focus on reducing your overall loan cost by taking steps to improve your credit, finding an alternative financing option or by asking a family member or friend to co-sign the loan.
There are five main options to fund home improvements aside from personal loans, each with its own set of benefits and drawbacks.
Do your research to determine which option best suits your needs and fits your budget. Since every home improvement project is different, you will need to make the decision based on how much you have to spend and how flexible your costs are.
The application process for a home improvement loan is similar to any other personal loan. You’ll need to submit some basic information to ensure you meet all the lender’s requirements when you apply.
Before applying, compare the different types of home improvement loans and lenders to ensure you get a loan that fits both your needs and monthly budget.
Since a home improvement loan is a type of personal loan, the average length ranges anywhere from around two to five years. Some lenders have home improvement-specific personal loans, which can last between two and 12 years.
Depending on the lender, home improvement loans range from as small as $1,000 up to $100,000. APRs are based on creditworthiness and vary anywhere from around 8 percent to 36 percent. Most also come with fees and associated costs that increase the total cost of borrowing, including an origination fee. These fees are typically deducted from the loan proceeds and range from 1 percent to 12 percent. To best gauge what a home improvement loan will cost, prequalify with multiple lenders and use a loan calculator.
Unsecured home improvement loans can be used for nearly any legal purchase. However, check with the lender before banking on a loan; some carry specific usage restrictions.
Arrow Right Writer, Personal Loans and Debt Relief
Hanneh Bareham, a Certified Financial Education Instructor℠, was a personal finance writer with Bankrate between 2020 and 2024.
