home renovation loan

Renovate Your Home with Ease: A Comprehensive Guide to Home Renovation Loans

Home renovation projects can be expensive. Besides adding value to your property, they help create more space that reflects your style. A home renovation loan is an option to finance home renovations, and they offer benefits you must be aware of.

These loans are unsecured, which means that they don’t require any collateral or guarantor. The eligibility criteria are straightforward, and the disbursal of the loan amount is speedy, with the approval process taking only a short time. Personal loans have a convenient repayment tenure, making it easy for borrowers to repay them at their convenience.

Despite all the benefits, a home renovation loan also has its downside. These loans come with high-interest rates, ranging from 8% to 15%, even higher than credit cards. As personal loans are unsecured, lenders charge high-interest rates to mitigate their risk, significantly impacting monthly payments.

Secondly, the repayment term is shorter. Most repayment periods range from 5 to 10 years, unlike home renovation loans that can offer a repayment period of up to 30 years. 

Lastly, personal loans have much less borrowing power. The loan amount is generally low, which is the opposite in the case of a home renovation loan, where the borrower can increase the amount to cover all home renovation expenses.

If you have great credit, a robust home emergency fund, cash flow to cover monthly payments, don’t have equity in your home, and do not want to use your home or car as collateral, personal loans augur well to finance your home renovation projects. Before you get a personal loan, it is crucial to understand how much you need to borrow and estimate your monthly payments to ensure you can afford to pay the loan within your regular budget. 

Pros of Personal Loan for Home Renovation

Lump-sum Amount

A personal loan for home expenses can cover the amount you need to renovate your home, depending on the quotation you receive. You can finance your home renovation goals with as little as Rs. 1 lakh or as much as Rs. 35 lakhs. Whether you want to renovate your kitchen or living room, a personal loan can cover your expenses.

Simple Eligibility & No Collateral Required

Personal loans are easier to obtain than other types of loans. The application process is straightforward. You do not have to provide any collateral in exchange. Doing so can ensure financial stability and make the most of your loan. Get a personal loan for home renovation.

Speedy Disbursal of the Loan Amount

Personal loans are popular due to their rapid processing and approval times. The approval process usually takes little time. You have the money directly disbursed to your bank account within a day.

Convenient Repayment Tenure

You can choose a repayment tenure that works for you and repay the loan in installments over time. Customers can select a longer term of up to 84 months to manage their monthly expenses. 

Cons of Personal Loan for Home Renovation

High-Interest Rates

Personal loans are unsecured, which means they come with higher interest rates than secured loans (such as home equity) that use your property as collateral. You typically pay between 8% and 15% on a personal loan or even higher on a credit card. A higher interest rate results in higher monthly payments, meaning your home improvement project financed with a personal loan will cost more.

Shorter Payback Period

The repayment term on a personal loan will likely be between 5 and 10 years. A home renovation loan commonly offers a payback period of between 20 and 30 years. A shorter repayment term means higher monthly payments, with excessive late fees if you miss a payment. You risk setting yourself up for a debt trap if you have inconsistent income.

Much Less Borrowing Power

While personal loans may allow you to borrow more, the reality is that most only go to a limited number. Only some borrowers will qualify for a personal loan to peak, with lending criteria based strictly on income and credit score. You will likely be able to borrow what you need to complete the renovations you want to carry out if you finance your project differently.

How to Choose a Home Improvement Loan Lender

When it comes to taking out a home improvement loan, it is important to choose the right lender. To make an informed decision, consider these factors as you compare different personal loan lenders:

● APR/Interest Rate: The interest rate is the amount you’ll pay to borrow the money, while the APR includes any fees on top of the interest rate. When comparing lenders, focus on the APR to get a better idea of the overall cost of borrowing.

● Fees: Some lenders charge fees, while others don’t. It is important to check for additional fees and factor them into your decision.

● Repayment Terms: The loan term can vary from less than a year to up to 12 years, depending on the lender. While a longer term can lower your monthly payment, it may cost you more in interest over time.

● Payment Options: Some lenders offer discounts on the interest rate if you sign up for automatic payments. Consider whether autopay is viable for you and whether the potential discount is worth it.

● Credit Score Requirements: While most lenders require a good credit score, some work with borrowers with low credit scores. Having bad credit may result in a higher interest rate, so it is worth considering a cosigner with good credit to improve your chances of loan approval and get a better rate. Remember that your cosigner will be responsible for loan payments if you default.

Overall, a personal loan can be useful for financing home improvements, but some may have better choices. Before applying for a personal loan, calculate how much you need to borrow and estimate your monthly payments.

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