Why Use Personal Loans For Home Improvement

Why Use Personal Loans For Home Improvement


Here are the top reasons why you should consider a personal loan next time you need to borrow money for home renovations or other minor expenses. We will also tell you how to make smart choices when taking out a substitute for home refinancing.

Is it financially wiser to take out personal loans for huge home improvement projects than refinancing it? No. But, if you are not planning to get a mortgage or refinance, a personal loan is a much better option than credit cards and business loans.

Here are the top reasons why you should consider a personal loan next time you need to borrow money for home renovations or other minor expenses. We will also tell you how to make smart choices when taking out a substitute for home refinancing.


It is unsecured, so there is no need for collateral. If you don’t want the creditor to foreclose your home when you fail to make several payments on time, a personal loan could be your safer choice than a mortgage.

Consequently, you will have faster access to cash simply because there is no need for you to provide collateral which is subject to asset appraisal. Lenders don’t have to appraise its value and verify their respective documentation. With lesser paperwork, you can access money within a few days.

But, a personal loan usually carries the highest interest rates of most type of loan, because of its unsecured nature. Since the lenders have no collateral to take possession of when the borrower fails to repay the loan, the lender charges high interest to offset the risk.

Credit Cards

It costs less than using your credit cards. You may have to pay around 15% APR or more on a credit card balance and if you are going to make a big purchase, just imagine how much it would cost with that rate. You can also use it to consolidate debt. If you have high-interest debts on your credit cards, you can use a personal loan to pay them to pay. By eliminating several smaller debts with high interest using a larger loan, you can save money on interest and lessen your repayments.

Cash Flow

Stabilise your cash flow. If you need a quick fix for your cash flow issues, a personal loan can help you out. You don’t have to put your home at risk simply because you are planning to renovate your home, or to deal with some minor expenses. Simply take out a loan to even out your cash flow, or to meet emergency expenses. It is also a good emergency fund alternative.

Those who are planning to invest in mutual funds or stocks or business opportunities can plunge into these worthy endeavours with quick access to loans. It will help you take great discounts or unique privileges at times when you need money the most. But, if you have less income and more bills to pay bills and your cash flow is down, it is time to take out a quick loan in the form of a personal loan.

Cash flow has several components:

  • discretionary expenses
  • fixed expenses
  • income
  • savings
  • taxes

Making sure that you have enough money to cover for these expenses may sound overwhelming. The best way to control your cash flow is to create a cash management strategy that allows you to allocate your money into these components, also called, ‘money buckets’. Otherwise, you may have to dip into a bucket which is not meant for a particular expense.

For example, if you are going to spend $5000 on home renovation, a type of discretionary expense, you may be tempted to dip into the savings bucket, or worst, from your fixed expenses bucket. Instead of doing this, you can get a short-term loan, and pay it back by small instalments. It will not shake off your cash flow, and at the same time, it can provide you with enough money to pay for your renovation or other urgent expenses.

Credit Score

Improve your credit score. It is beneficial to have a good mix of credit. By adding an instalment loan in your credit report your credit score may improve by a few points. Your payment history also accounts for roughly 35% of your credit score. So, it is wise to get a loan which is more than the exact amount you need to pay for home renovation so that you can also use it to update repayments on your credit card bills, utilities and other outstanding debts. When you keep your credit card balances low, repay debts, and avoid maxing out your credit, you will eventually see an increase in your credit rating.

A personal loan is a viable option for those who do not want to refinance or get a second mortgage. But, if you want to get a high amount of loan with more manageable monthly payments or the ones that you can pay off comfortably, perhaps it is time to consider getting a second mortgage. Take advantage of better rates, as the market improves, you can also use it to get cash for immediate expenses or to consolidate your high-interest debts. So, if personal loans cannot help you meet your immediate goals—give the second mortgage a chance.

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