What you need to know about home improvement loans
As of Wednesday, September 23, 2020
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When shopping for the best home improvement loan, look for the lowest interest rate, an affordable repayment term and low to no fees. Loan details presented here are current as of the publish date. Check the lenders’ websites for the most up-to-date information. The top lenders listed below are selected based on factors such as APR, loan amounts, repayment terms, credit requirements and broad availability.
Current home improvement loan rates
| LightStream |
Long-term financing
|
4.99%–16.99% (with autopay)
|
$5,000
|
$100,000
|
| SoFi |
Unemployment protection
|
5.99%–19.16% (with autopay)
|
$5,000
|
$100,000
|
| Marcus by Goldman Sachs |
Minor home improvements
|
6.99%–19.99%
|
$3,500
|
$40,000
|
| TD Bank |
Convenience
|
5.67%–21.99% (with autopay)
|
$2,000
|
$50,000
|
| LendingClub |
Emergency home repairs
|
10.68%–35.89%
|
$1,000
|
$40,000
|
| Best Egg |
Consumers with limited credit history
|
5.99%–29.99%
|
$2,000
|
$35,000
|
| Upstart |
Consumers with below-average credit
|
7.35%–35.99%
|
$1,000
|
$50,000
|
| Prosper |
Online-only experience
|
7.95%–35.99%
|
$2,000
|
$40,000
|
What are today’s average home improvement loan rates?
Average home improvement loan rates currently range from around 5.99 percent to around 36 percent. While the rate you're quoted depends on many factors, the most important is usually your credit score; the higher your credit score, the lower your rate. Many lenders provide their minimum credit score requirements, as well as the credit score needed to receive the lowest rate. However, even if your score is closer to the minimum, it's still worth going through prequalification, as lenders may also factor in things like your annual income and employment status when determining your rate.
Summary: home improvement loans in 2020
What is a home improvement loan?
A “home improvement loan” is usually an unsecured personal loan used to pay for home repairs and improvements. An unsecured loan does not require you to put up an asset, like your house, as collateral. Loans can range from $1,000 to $100,000 and typically have a fixed interest rate and a fixed monthly payment. They are available at traditional banks, credit unions, online lenders and peer-to-peer lenders.
How does a home improvement loan work?
When you're approved for a home improvement loan, you receive all funds upfront, which you can then use to make your renovations. As soon as funds are disbursed, you'll enter the repayment term, which can last anywhere from one to 15 years. During this time, you'll make regular fixed payments on the loan, paying back the principal plus interest.
Types of home improvement loans
There are several different kinds of loans you can use to make home improvements. The most common are:
- Personal loans: These unsecured loans, which are featured on this page, can be used for any reason. Interest rates are based on your credit score, and you don’t have to provide collateral. This may be a good option if you want to avoid using your home to secure a loan.
- Home equity loans: These are lump-sum loans that are often used for home-related projects and needs. Your home is used to secure the home equity loan. Because of this, you can usually expect a lower interest rate than with a personal loan, but if you miss payments, your home could face foreclosure.
- Home equity line of credit (HELOC): A HELOC is a revolving line of credit. You can take money out for home-related expenses as needed, rather than as a lump sum. Your home is still used as collateral for a HELOC, and you’ll score lower interest rates because of it.
How to apply for a home improvement loan
Once you determine the scope, the timeline and the cost of your home improvement project, it’s time to apply for a loan. Shopping around will help you find the most competitive rate.
Here’s what you’ll need to have ready before applying for a home improvement loan:
- Your personal information: Your Social Security number, your employment history, your proof of income, your employer information and a list of any monthly debts, such as a car loan, student loans and credit card payments.
- Your debt-to-income ratio: You can calculate your DTI by dividing all of your monthly debt payments by your monthly income. Lenders generally prefer a DTI of 36 percent or less, but many lenders will consider borrowers with higher ratios if their income is sufficient. Anything close to 50 percent, though, may disqualify you.
- Your credit score: It’s smart to determine your chances of qualifying before you apply for a loan. Get a free copy of your credit report from each of the major credit-reporting bureaus: Equifax, TransUnion and Experian. You are entitled to one free report a year from each bureau. The most favorable rates go to borrowers with the best credit scores. Every lender you apply with will check your credit score and credit history.
- The cost of your project: Home improvement projects can vary widely in cost. Remodeling a half-bathroom won’t cost as much as replacing all the windows in your home. Before applying, know the cost of your materials and length of your project. Don’t borrow more money than you need.
How to choose the best home improvement lender
Using a personal loan for home improvements can be a quick and easy way to increase the livability, curb appeal and value of your home.
Start by shopping for a home improvement personal loan that works best for you. Compare offers from a variety of lenders, such as banks, credit unions and online marketplaces.
The best home improvement lenders have:
- The lowest rates: Look for lenders that offer the lowest home improvement loan interest rates. Even if your credit score isn’t stellar, look for lenders with a low maximum rate. While borrowers with excellent credit will get the lowest rate, you still want to make sure you aren’t paying more than you need to.
- The largest loan amount: How much can you borrow? If you’re tackling a large renovation, like a new roof, you might need to borrow a significant amount of money. Find a lender that offers as much as you need.
- The fewest fees: Sometimes lenders charge an origination fee, a late fee or miscellaneous fees on top of your principal and interest payments. Factor in fees when considering a lender's offer.
- The easiest repayment terms: See how long it’ll take you to repay your loan. Longer repayment periods will lower monthly payments, which is especially important for borrowers seeking large loans. Some lenders have terms as long as seven or even 12 years, depending on how much you borrow.
What are the best home improvement loans in 2020?
To find the best home improvement loans, we combed through interest rates, repayment timelines and fees. Here are the best home renovation loans to consider in 2020, along with loan details and profiles of borrowers they best fit:
- LightStream: Best lender for long-term financing
- SoFi: Best lender for unemployment protection
- Marcus by Goldman Sachs: Best lender for minor home improvement projects
- TD Bank: Best lender for convenience
- LendingClub: Best lender for emergency home repairs
- Best Egg: Best lender for consumers with little credit history
- Upstart: Best lender for consumers with below-average credit
- Prosper: Best lender for online-only experience
LightStream: Best lender for long-term financing
Overview: The online lending arm of Truist (formerly SunTrust Bank) offers unsecured personal loans big enough for major home projects with competitive rates and up to 12 years to repay, if you qualify.
Perks: You can borrow up to $100,000 at a very competitive rate if your credit is excellent. There are no fees or penalties for paying off the loan early.
What to watch out for: LightStream requires good to excellent credit. Rates without autopay are 0.5 percentage points higher, and you must borrow at least $5,000.
| LightStream |
| 4.6 / 5.0 |
| 660 |
| 4.99%–16.99% (with autopay) |
| $5,000–$100,000 |
| 2 to 12 years |
| Not specified |
| None |
Read Bankrate's expert LightStream Review.
SoFi: Best lender for unemployment protection
Overview: SoFi, an online-only lender, offers personal loans for home improvements ranging from $5,000 to $100,000.
Perks: Repayment terms stretch from two to seven years, and the loans do not have origination fees or prepayment penalties. SoFi also has an “Unemployment Protection Program” that temporarily pauses your payments if you lose your job.
What to watch out for: Good to excellent credit is required. SoFi loans are also not available in Mississippi, and minimum loan amounts may be higher in some states — so make sure to check the terms for your state to make sure you won't have to borrow more than you need.
| SoFi |
| 4.7 / 5.0 |
| 680 |
| 5.99%–19.16% (with autopay) |
| $5,000–$100,000 |
| 2 to 7 years |
| Not specified |
| None |
Read Bankrate's expert SoFi Review.
Overview: Marcus by Goldman Sachs is an online lender that offers unsecured personal loans for home improvements. You do not have to have a relationship with Goldman Sachs to apply.
Perks: You can borrow as little as $3,500, which is good for minor fixes around the house. There are no late fees or prepayment fees, and the lender has an app for mobile banking.
What to watch for: If your credit is weak, you may not qualify for a loan. It can also take up to five days to receive the loan money.
| Marcus by Goldman Sachs |
| 4.7 / 5.0 |
| Not specified |
| 6.99%–19.99% |
| $3,500–$40,000 |
| 3 to 6 years |
| Not specified |
| None |
Read Bankrate's expert Marcus by Goldman Sachs Review.
TD Bank: Best lender for convenience
Overview: For borrowers who want a brick-and-mortar lender, TD Bank has more than 1,200 locations on the East Coast, which are open on weekends. It also offers mobile banking to consumers nationwide.
Perks: TD Bank has two different personal loan products to choose from based on your needs: the TD Fit Loan, an unsecured loan that makes funds available in as little as one business day, and the Secured Loan, which offers a lower interest rate.
What to watch for: TD Bank's unsecured loan charges a late fee of 5 percent or $10, whichever is less, and its secured loan charges an origination fee of $50. The rate cap on its unsecured loans is also fairly high at 21.99 percent.
| TD Bank |
| 4.2 / 5.0 |
| Not specified |
| 5.67%–21.99% (with autopay) |
| $2,000–$50,000 |
| 1 to 5 years |
| Not specified |
| Late fee: 5% or $10 for unsecured loans; Origination fee: $50 for secured loans |
Read Bankrate's expert TD Bank Review.
LendingClub: Best lender for emergency home repairs
Overview: LendingClub is a peer-to-peer lender that offers loans of up to $40,000 for home improvement projects. You can apply online and get a loan quote without a hard pull on your credit report.
Perks: LendingClub lets you borrow as little as $1,000, which is convenient if the hot water heater or clothes dryer conks out and you’re short of cash. LendingClub also allows co-signers and joint applicants, which makes it easier for people with below-average credit to be approved.
What to watch for: There is an origination fee of 2 percent to 6 percent of the loan amount, and the late payment fee is the greater of 5 percent or $15. The APRs for borrowers with poor credit are also on the high side, hitting close to 36 percent if your credit is bad.
| LendingClub |
| 4.5 / 5.0 |
| 600 |
| 10.68%–35.89% |
| $1,000–$40,000 |
| 3 or 5 years |
| Not specified |
| Origination fee: 2% to 6%; Late fee: 5% or $15 |
Read Bankrate's expert LendingClub Review.
Best Egg: Best lender for consumers with little credit history
Overview: Borrowers with little credit experience and a FICO credit score of just 640 may be able to qualify for a home improvement loan with Best Egg. Best Egg home improvement loans allow you to finance big expenses like building a new deck, replacing your garage door and remodeling your kitchen.
Perks: You can borrow as little as $2,000 or as much as $35,000. Borrowers with great credit can get rates starting as low as 5.99 percent, and there is no penalty for paying off the loan early.
What to watch for: Best Egg charges origination fees of 0.99 percent to 6.99 percent, and there is a $15 fee for late payments.
| Best Egg |
| 4.7 / 5.0 |
| 640 |
| 5.99%–29.99% |
| $2,000–$35,000 |
| 3 or 5 years |
| Not specified |
| Origination fee: 0.99% to 6.99%; Late fee: $15; Returned payment fee: $15 |
Read Bankrate's expert Best Egg Review.
Upstart: Best lender for consumers with below-average credit
Overview: Consumers with tainted credit still might be able to qualify for an unsecured home improvement loan with Upstart, a peer-to-peer lender. Upstart home improvement loans allow you to finance home improvement projects like home renovations or unexpected home expenses, such as a roof repair.
Perks: There’s no penalty for paying off the loan early. Loan amounts start as small as $1,000, and you can get your loan funds in just one business day.
What to watch for: Loans cannot have co-signers, and there is a late fee of 5 percent or $15, whichever is less.
| Upstart |
| 4.5 / 5.0 |
| 600 |
| 7.35%–35.99% |
| $1,000–$50,000 |
| 3 or 5 years |
| Not specified |
| Origination fee: 0% to 8%; Late fee: 5% of unpaid balance or $15; Returned check fee: $15 |
Read Bankrate's expert Upstart Review.
Prosper: Best lender for an online-only experience
Overview: Prosper was founded in 2005 and is a pioneer in the digital lending marketplace. It is a peer-to-peer lender, which matches investors with borrowers. Prosper offers fixed-rate unsecured personal loans to borrowers with good to excellent credit. Prosper’s home improvement loans let you make renovations like building an outdoor deck or room addition.
Perks: There are no penalties for paying off your loan balance early, and the initial application process will result in a soft pull on your credit, which won’t hurt your score. The paperless application process is quick, and borrowers receive their funds within five days on average.
What to watch for: Prosper charges origination fees of 2.41 percent to 5 percent and late fees of 5 percent or $15, whichever is greater. If your credit is poor, you may have to find another lender, as Prosper's credit threshold is 640.
| Prosper |
| 4.6 / 5.0 |
| 640 |
| 7.95%–35.99% |
| $2,000–$40,000 |
| 3 or 5 years |
| Not specified |
| Origination fee: 2.41% to 5%; Late fee: $15 or 5%; Check fee: $5 or 5%; Insufficient funds fee: $15 |
Read Bankrate's expert Prosper Review.
Who should get a home improvement loan?
A home improvement loan could be an attractive option for people with above-average credit who need a lump sum in order to cover home renovation projects. Before committing to a home improvement loan, it's best to get a few quotes and consult a personal loan calculator to see what your monthly payments would look like. If you're confident in your ability to fit those payments into your budget for the duration of the repayment term, the loan could be a good idea.
Who should not get a home improvement loan?
A home improvement loan is not the best idea for people with poor credit or people unable to afford the fixed monthly payments. If you don't need all of the loan funds upfront, a home equity line of credit could be a better idea. This allows you to take only the funds you need and therefore better control how much you repay.
A home equity loan or home equity line of credit may also be a better choice for people with below-average credit or those looking for a tax break — unlike a home improvement loan, home equity loans and lines of credit let you deduct the interest paid if you use the funds to substantially improve your home.
Frequently asked questions about home improvement loans
How is a home improvement loan different from a home equity loan and HELOC?
The biggest difference between a personal loan for home improvements and a home equity loan or line of credit (HELOC) is that the personal loan is unsecured. Home equity borrowers have to use their homes as collateral. The interest rate on a home equity loan tends to be lower because the loan is secured.
To figure out which option is best for you, make sure you know the differences between a home improvement (personal) loan, a home equity loan and a HELOC. Some benefits of home improvement loans include:
- Unsecured options: Unlike home equity loans and HELOCs, home improvement loans don't require you to use your home as collateral. Instead, lenders rely on your credit score and debt-to-income ratio to determine your creditworthiness and the interest rate on the loan.
- Shorter repayment periods: Home improvement loans are generally repaid over a few years, depending on the lender. In contrast, home equity loans and HELOCs have repayment options of up to 20 years.
- Flexibility: The loan amount is not limited by how much equity you have in your home. You can apply for as little or as much money as you need.
- Lower closing costs: Closing costs on equity loans can reach thousands of dollars, but many personal loans have no origination fees.
Can a home improvement loan increase my home's value?
Doing home improvement projects makes it less likely that you’ll have to pay for expensive repairs down the road. When you replace your roof and gutters, for example, you protect your home from water damage. Some projects add more value to your home than others.
Some home improvement projects are expensive but add little value to your property. Comparing the cost of the project to its value can help you determine your asking price when it’s time to sell.
The projects that recoup the most cost, according to the Remodeling 2020 Cost vs. Value Report, include the following:
- Garage door replacement (94.5 percent cost recouped).
- New manufactured stone veneer (95.6 cost recouped).
- Minor to mid-range kitchen remodel (77.6 percent cost recouped).
What are other uses of home improvement loans?
Home improvement loans are personal loans, which means they can be used for almost any type of project, from replacing the hot water heater or air conditioner to a total kitchen renovation. Some of the major improvements you can use your home improvement loan for include:
- Roof repairs: Roof replacements might be one of the most costly repairs your home will face. If you don’t have the cash on hand to pay for roof repairs, you may need to take out a home improvement loan.
- Kitchen remodeling: Whether your kitchen is outdated or just needs a little face-lift, a home improvement loan can help make your new kitchen vision a reality.
- Bathroom renovations: If you need to make major changes to your bathroom or fix outdated plumbing, a home improvement loan can cover costs right away.
- New pool: If you’re looking to add a pool or update the one you have, a home improvement loan can pay for it now, giving your home an instant equity boost.
What type of loan is best for home improvements?
The type of loan that is best for your home improvement needs is a loan that you can afford and that covers the costs of your project.
If you don't want to use your home as collateral to get a loan, a home improvement personal loan is an excellent choice, as long as you qualify for a decent rate and the repayment terms are comfortable for you. However, if you're after the lowest possible interest rate or longer repayment timelines, something like a home equity loan or HELOC could be a better fit.
Are home improvement loans tax deductible?
Personal loans for home improvement are not tax deductible, because they're not secured by your home. Home equity loans and home equity lines of credit, on the other hand, use your home as collateral for the loan. Because of this, you may be able to deduct the interest paid on your loans if the funds were used to "buy, build or substantially improve" the home that was used as collateral.
Tips for paying back your home improvement loan
Once you receive your home improvement loan, you'll have to start paying it back immediately. Here are a few tips for managing your loan during the repayment period:
- Set up automatic payments: Because late payments may incur fees or even ding your credit score, you may want to set up a calendar reminder or automatic payments. This serves a dual purpose, as many lenders discount your interest rate if you set up autopay.
- Budget early: Once you have an idea of what interest rates lenders will offer you, you can use a personal loan calculator to determine your approximate monthly payment. From there, you can retool your budget as needed in order to accommodate the new bill.
- Pay a little extra: Many personal loan lenders will not charge a fee if you pay off your loan early, and eliminating that debt before the end of your repayment term will reduce the amount you pay in interest. If you receive a bonus at work or pick up a side job, use those funds to make an extra payment on your loan.
Alternatives to home improvement loans
If you don’t qualify for a home improvement loan or you can’t find one that’s right for you, consider alternatives like:
- Cash-out refinancing: Cash-out refinancing replaces your current mortgage with a new one that’s higher than the amount you owe. You pocket (or “cash out”) the difference between the two loans.
- Credit cards: If you don’t have a major home expense and just need to cover a few minor improvements, a credit card might be a good idea. For one thing, you may be able to take advantage of cash back or a low introductory APR. However, make sure you have a plan in place to pay back your balance in a timely manner; otherwise you’ll face interest rates that are much higher than those of most home improvement loans.
- Federal programs: If you can't qualify for a home improvement loan, you might be able to get a HUD Title I property improvement loan, in which the federal government insures the private lender against loss. HUD does not lend the money; it just insures the Title I lender. The FHA's Limited 203(k) Mortgage allows homeowners and homebuyers to finance up to $35,000 into their mortgage for repairs and improvements.
No matter what option you go with, research multiple lenders and offers before choosing the best one for you.
