If you own a home, chances are that at one point or another you’ll want to change something and when the time comes, you’ll notice that home improvements usually come with a hefty price tag. If you can’t afford to pay for your home projects in cash, you may consider turning to private loans in order to finance your project. But, is it a good idea to take a private loan for your home renovation project? The short answer is yes, here’s why.
Before we talk about the advantages of private loans for home projects, you need to understand what a private loan is. As the financial advisors at www.instabank.se/privatlan simply explain, a private loan used for financing home projects is like any other unsecured private loan. Unlike home equity loans, private loans don’t require pledging your vehicle, house, or any valuable item of your belongings as collateral. However, this also means that the interest rates imposed by the bank will be slightly higher than other secured loans.
While home equity loans can provide an economical form of financing, they’re not always the best solution for all home improvement projects because they come with the risk of your lender foreclosing on your home if you default on your payments, this is why a private loan can be a better alternative for you if you’d rather not risk the roof over your head.
Private loans range between $1,000 and $60,000 and they typically just require a customer’s signature on documents promising to pay the loan back. The bank uses your credit score, among other factors to determine your eligibility and the applicable interest rate. Naturally, high credit scores equal creditworthiness and the more creditworthy you are, the better the interest you’ll get.
The average interest rate ranges from 10.3% to 32%. However, some banks offer rates that can range from as low as 2.49% to as high as 36%. While most private loans have a fixed term of 1 to 7 years, some can go up to 15 years. Additionally, you can find many banks that offer flexible rates with flexible monthly amounts. Although this allows more freedom, a fixed rate can be better because it allows you to factor predictable monthly payments in your budget.
As with any loan, you should always check with multiple lenders, both local and online, to find the best private loan for your home project.
Depending on your needs, budget, the interest rate you’re able to secure, and how quickly you can pay off the loan, using a private loan for your home improvement projects can be a good idea. It’s generally recommended to go for a long-term equity loan for major renovations such as a home addition, while private loans are more common for minor renovations such as flooring.
While applying for a home equity loan requires a lot of paperwork, private loans are generally easier and faster to secure as they only require basic documentation. Additionally, private loan applicants typically receive a loan decision within days, as opposed to weeks, which makes private loans a better option for borrowers on a tight schedule.
Depending on the nature of the home improvement project you want to complete, some banks may offer you discounts. For instance, some banks across the US offer a 1% additional discount rate for green home improvements that aim to improve energy efficiency.
As previously stated, private loans don’t draw on your home’s equity, which means that you can qualify for a loan even if you don’t have significant equity in your home. Additionally, because they don’t require collateral, private loans enable you to use your home equity for other expenses if you wish.
If you rely on your home equity to help pay for college education or want to take out a home equity loan to start a business, a private loan can allow you to make the necessary home improvements and at the same time leverage your home equity for another purpose.
Last but not least, unlike home equity loans that often have a minimum of at least $10,000, private loans allow you to borrow smaller amounts —as little as $1,000— which makes them much more convenient for minor home renovation projects.
Your home is a big, valuable investment, and private loans can offer the funding you need to strengthen that investment with renovations, improvements, and repairs. Whether you need a new roof or your kitchen is outdated, a private loan that’s tailored to your needs can help you move forward with your home-improvement dreams without risking your home ownership.