Using Personal Loans for Home Improvement

Many people use personal loans for home improvement projects. If you cannot qualify for a refinance, or home equity loan, they are good alternative forms of financing. Personal loan options have their advantages and disadvantages, here are a few things to consider about using personal loans for home improvement purposes.

Higher Interest 

One important thing to remember is that you will be spending more money because you will be given a higher rates than other forms of loans. Sometimes, the difference in rates can be as high as 5 to 7 percent for personal loans. They are more expensive and cost more. Because of the increased spending, you will need to decide if the home improvements are worth the significantly higher interest that you will be paying.

Loan Term

Something else to consider is the loan term, with these types of loans. Most personal loans have a much shorter loan term then a refinance or home-equity loan. A typical refinance loan will give you 30 years to repay the balance. This makes your monthly payment much more manageable. With a personal loan, you will only be given five years, or so, to repay the balance. This makes the monthly payment much higher and presents you with limited flexibility when it comes to payments. Loan terms are always easier to maintain if they have longer terms.

Tax Benefit

A personal loan for home improvement purposes does not offer you the tax benefits of home loans. Many homeowners choose to use a refinance, or use home equity loans, for home improvements because of the tax benefits that are offered. Any interest that you are charged with those types of loans can be deducted directly from your taxable income. You often pay for home improvements with the savings in your taxes. With a personal loan, you will receive no such deduction from the IRS, and this creates a disadvantage, when compared to the more common types of home improvement loans.

Home Value

The main benefit that of using a personal loans is that you can increase the value of your home. If you choose the proper home improvements, you could significantly raise the value of your home. With a good investment, you could eventually get a good portion of the money back. However, most real estate experts will tell you that most improvements will not raise the value of your home as much as you think. In most cases, you will only make a portion of your investment and you can only hope that the percentage is high.

You should only borrow money for home improvements if you plan on enjoying the home improvements yourself. In most cases, the repairs should not be done for speculative reasons, because the returns on not there. Most improvements will not justify borrowing money by the increase that they provide in the sale price of the home. Howeever, you can not quantify the returns of improvements that you enjoy.

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