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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Unsecured loans marketed specifically for home improvement are a relatively recent option that’s sometimes preferred over a home equity loan or home equity line of credit (HELOC). Many of the current lenders started making these loans after the home market collapsed over a decade ago, leaving many homeowners with less (or negative) equity. An is a that has no asset attached to it to secure the debt. Unlike and , these loans do not use your homes as collateral and or require you to have a certain amount of home equity to qualify. A key advantage of using an unsecured home improvement loan rather than a home equity loan or HELOC is that the lender can’t foreclose on your home if you default on the loan unless that lender is awarded a judgment by a court. 1 Unsecured loans come in lower dollar amounts
Since unsecured loans are more risky for lenders, they usually come with lower maximum loan amounts. Depending on your financial situation, most lenders might allow you to borrow up to $50,000, and a few lenders might let you borrow up to $100,000 if you have a large income. Still, the loan amount may not be sufficient to cover the costs of the home improvements you have in mind. The loan amount will be based on your income, and credit score, which could prevent you from borrowing more than you can comfortably afford to repay. Taking out a larger loan may mean a larger monthly payment, depending on the repayment period. Use a to estimate your monthly payments and determine if it works for your budget. If you have more than $100,000 worth of equity in your home, you could potentially borrow more money with a home equity loan. Lightbulb Takeaway The loan amount you’re approved for may be lower than what you’d get with a home equity loan product, depending on your income, current debt load and credit health. 2 Loan terms are usually shorter
Another factor to consider when deciding or home repairs is that loan terms are usually shorter for unsecured personal loans than for secured loans. While home improvement loans usually have terms that range from two to 12 years, home equity loans have terms that range from five to 30 years. Having a longer repayment term might be better for your budget since your monthly payments could be lower. However, the downside to this is that you’ll end up paying more in interest during the life of the loan. To illustrate, if you get a 10-year home improvement loan for $50,000 with a fixed rate of 8 percent, you’ll pay $607 each month and $22,796.56 in interest over the loan term. But if the term is extended to 30 years, your payment will drop to $367, but you’ll pay $82,077.62 in interest. Lightbulb Takeaway A shorter loan term means a higher monthly payment, but you’ll likely save a bundle in interest over the loan term. 3 They are quick to obtain often with no start-up fees
Unsecured personal loans are based on your income, debt load and credit history, so they can be as quick and easy to get as a credit card. Also, some lenders offer same-day approval and will deposit your funds into your account as soon as the next business day. The seamless process and quick funding times mean you can start your home improvement projects sooner than later. In addition, if you search for home improvement loans with no fees, you can minimize your borrowing costs. Common fees include application fees, origination fees, returned payment fees and prepayment fees, which are penalties for paying loans off before the end of their term. If you get a home equity loan instead, you may have to pay closing costs that could cost you several thousands of dollars — typically between 2 percent and 5 percent of the loan amount Lightbulb Key Takeaway Unsecured home improvement loans often feature fast funding times and minimal fees compared to home equity loan products. 4 You may pay higher interest rates without collateral
If you choose an unsecured loan for home improvement, you might pay a higher interest rate since these loans are riskier for the lender. As of October 2022, range from 3 percent to 36 percent. By contrast, the average home equity loan rate ranges from 6.52 percent to 8.28 percent, and the average HELOC rate ranges from 5.59 percent to 9.89 percent. The rate you receive on your home improvement loan depends on a few factors, mainly your credit score. Generally, the best rates are reserved for borrowers with the highest scores. To get an estimate of what your rate might be, with multiple lenders if possible. Lightbulb Key Takeaway The interest rate on an unsecured loan for home improvement could be higher to offset the risk the lender assumes since it’s an unsecured debt product. 5 Unsecured borrowers need good credit
Want to get an unsecured home improvement loan? To qualify for a large loan amount, you’ll need good credit — a credit score of 670 or more, according to the FICO credit scoring model. You might not meet the lender’s minimum credit scoring requirements if you have poor or bad credit. Even if you are approved, you’ll most likely qualify for a lower loan amount with a higher interest rate. For example, a 5-year, $15,000 loan with a 6 percent interest rate will cost you $2,399.52 in interest. But a loan for the same amount with a 20 percent interest rate will cost you $8,844.50. If you have bad credit and you’re willing to pay more for a home improvement loan, consider applying for a . Some lenders might approve you for a loan with a credit score as low as 580. To improve your chances of qualifying for a loan or getting a lower rate, you can apply with a if the lender lets you. Alternatively, you can take steps to before applying, such as paying down debt. Lightbulb Key Takeaway A good credit score is typically required to get the most competitive terms on an unsecured loan for home improvement. Alternatives to unsecured loans
If you’d prefer to explore other options, consider paying with cash or a credit card. Cash
It could take some time to save up enough to pay for home improvements. The upside is you can complete projects without racking up debt and having to repay lenders for years to come. Credit cards
You can use a credit card to cover the cost of minor upgrades. If possible, use a balance-transfer credit card that offers an interest-free purchasing period. But you should pay the balance in full before the promotional period ends for this payment strategy to make sense. Otherwise, a small purchase could cost you several hundred or thousands more in interest. Secured loans
Secured loans are ideal if you have less than perfect credit as they’re generally easier to qualify for. Like unsecured loans, you don’t need a ton of equity in your home to qualify, and you’ll also make monthly installment payments over the loan term. The key difference is an asset is required to serve as collateral for the loan, and the lender could seize it if you fall behind on your loan payments. Still, a secured loan may be worth considering if you’re confident the monthly payments won’t be an issue as you’ll likely get a lower interest rate. Plus, managing the loan responsibly could help improve your credit score over time if the lender reports payment activity to the major credit bureaus – Experian, TransUnion and Equifax. Bottom line
Unsecured loans can be a viable option to pay for home improvements without dipping into your savings. Plus, unlike home equity loans or HELOCs, they’re less risky as your home won’t automatically be at risk for foreclosure if you fall behind on the loan payments. But if you’ve already tried applying for an unsecured loan and didn’t get approved, you’re not completely out of luck. Consider paying cash, using a credit card or getting a secured loan, instead. SHARE: Aylea Wilkins is an editor specializing in personal and home equity loans. She has previously worked for Bankrate editing content about auto, home and life insurance. She has been editing professionally for nearly a decade in a variety of fields with a primary focus on helping people make financial and purchasing decisions with confidence by providing clear and unbiased information. Related Articles