Quick overview

Using a personal loan to pay for home improvements means borrowing unsecured money from a bank, credit union, or online lender and repaying it in fixed installments. In my 15+ years advising homeowners, personal loans are an attractive option when you have limited home equity, need speed, or prefer a fixed monthly payment. They’re commonly used for kitchens, bathrooms, roof repairs, landscaping, and energy-efficiency upgrades.

Authoritative sources: Consumer Financial Protection Bureau (CFPB) guidance on personal loans and unsecured lending (https://www.consumerfinance.gov) and IRS rules on interest deductibility (see IRS Publication 535) are useful starting points. Always confirm rates and terms with lenders and consult a tax advisor for your situation.

How a personal loan for home improvement works

  • Application and approval: Lenders review credit score, debt-to-income ratio, income documentation, and sometimes employment history. Most borrowers start with prequalification to compare offers with only a soft credit pull.
  • Loan terms: Typical unsecured personal loan amounts range from about $1,000 up to $50,000 (some lenders go higher). Terms commonly span 2–7 years, though short- and longer-term options exist. APRs vary widely—borrowers with strong credit may see rates in the single digits while others can face rates much higher (online lenders sometimes offer up to the mid-20s or beyond).
  • Disbursement and use: Funds are usually deposited to your bank account and can be used for almost any legitimate renovation expense. Lenders rarely restrict the exact project but may treat certain uses as higher risk.
  • Repayment: Fixed monthly payments that include principal and interest simplify budgeting but can lead to higher total interest costs if the term is long.

Pros (why borrowers choose personal loans)

  • No home as collateral: Personal loans are unsecured, so your home isn’t at direct risk of lender-initiated foreclosure if you default on the loan itself (but note: other loans that are secured could still place your home at risk).
  • Faster access: Many online lenders and credit unions can approve and fund loans within a few business days, which helps when projects have tight timelines.
  • Predictable payments: Fixed-rate loans make budgeting easier compared with variable-rate options like HELOCs.
  • Useful with low home equity: If you don’t have sufficient equity to qualify for a HELOC or cash-out refinance, a personal loan may be the only practical non-credit-card option for larger projects.
  • No closing costs or lien: Unlike a mortgage refinance or HELOC, unsecured personal loans typically don’t require a title search or create a lien on your property.

Cons (risks and drawbacks)

  • Higher interest rates: Because they’re unsecured, personal loans usually carry higher APRs than home-secured products. Over a multiyear term, that interest can add substantially to project cost.
  • Shorter terms can mean higher payments: A 3–5 year repayment period raises the monthly payment relative to a mortgage-based product, which can strain monthly budgets.
  • No tax deduction in most cases: Interest on a personal loan used for personal home improvements is generally not tax-deductible. Exceptions exist for business or rental-property uses—see IRS guidance (IRS Publication 535) and talk to a CPA for specifics.
  • Effect on credit and debt ratios: Taking on a personal loan increases your total debt and can affect your debt-to-income ratio and credit score (hard inquiry and higher utilization factors).

When a personal loan makes sense (practical scenarios)

  • You lack home equity: If you can’t access a HELOC or cash-out refinance, a personal loan fills the financing gap for mid-size projects.
  • You want a fixed monthly payment: Homeowners who dislike variable-rate products often prefer the certainty of a personal loan.
  • You need quick funding: Emergency repairs (roof, HVAC, plumbing) frequently require speed more than the lower cost of secured borrowing.
  • Project size matches loan typical limits: For projects in the $5,000–$40,000 range, personal loans can be competitive, especially for borrowers with strong credit.

Real-world example: I worked with a homeowner who needed a $20,000 kitchen update but had under 10% equity. They took a 5-year personal loan at a 7% APR—monthly payments were manageable, and the renovation helped sell the home faster and at a higher price. If they’d waited to build equity for a HELOC, market conditions might have changed.

Eligible projects and expected outcomes

Common projects financed with personal loans:

  • Kitchen and bathroom remodels
  • Roof replacement and major repairs
  • HVAC installation or replacement
  • Energy-efficiency upgrades (solar panels, insulation)
  • Landscaping and hardscaping

Not every improvement increases resale value equally. Structural, systems, and kitchen/bath upgrades tend to produce better returns than purely cosmetic changes. Local market conditions matter.

How to compare personal loan offers (step-by-step)

  1. Get prequalified from multiple lenders to compare APRs and monthly payments without multiple hard pulls.
  2. Check the annual percentage rate (APR), not just the interest rate—APR includes fees.
  3. Compare total repayment cost (monthly payment × number of months) to see long-term expense.
  4. Confirm any origination fees, prepayment penalties, or late fees.
  5. Use an amortization calculator to see how much interest you’ll pay over different term lengths.

For a deeper lender checklist, see our Personal Loan Shopping Checklist: Rate, Fees, and Fine Print.

Alternatives to consider

  • HELOC or home equity loan: Often lower rates because the loan is secured by your home, but they use your property as collateral and can have variable rates.
  • Cash-out refinance: Replaces your mortgage with a larger one and can offer lower rates but involves closing costs and resets your mortgage term.
  • Credit cards: Useful for small projects if you can use a 0% introductory APR offer and pay balances before the rate resets. Otherwise, cards can be expensive.
  • Contractor financing or manufacturer loans: May offer promotional rates but read the fine print and compare to unsecured loans.

If you want lender-specific borrower requirements for home improvements, see our related article on Using Personal Loans for Home Improvement: Lender Requirements.

Practical tips to lower costs and risk

  • Improve your credit score before applying to get better APRs.
  • Keep the loan term as short as you can afford to reduce interest paid.
  • Consider a secured alternative (HELOC or home equity loan) only if you’re comfortable using your home as collateral and the lower rate justifies the added risk.
  • Lock in a fixed rate to avoid future rate shocks.
  • Get multiple contractor bids and set a project contingency budget (typically 10–20%).

Common mistakes homeowners make

  • Borrowing more than the project needs: Avoid taking extra cash-out unless you have a clear plan and understand the cost.
  • Ignoring the total interest cost: Focusing only on monthly payments can obscure a much larger total repayment amount.
  • Assuming renovation equals value: Some improvements won’t return their full cost at sale, especially in overbuilt neighborhoods.

FAQs

Q: Will a personal loan affect my mortgage approval later?
A: Potentially. A new personal loan increases monthly debt obligations and could reduce the amount you qualify for if you apply for a mortgage shortly after taking the loan.

Q: Can I deduct interest on a personal loan used for remodeling?
A: Generally no. Interest on personal loans used for personal home improvements is not deductible. If the loan finances a rental property improvement or a trade/business expense, different rules apply—see IRS Publication 535 and consult a tax professional (https://www.irs.gov).

Q: What credit score do I need?
A: Approvals vary by lender. Many lenders consider scores above 600, but better rates typically start in the mid-600s to 700s.

Bottom line

A personal loan is a practical, fast, and predictable way to finance many mid-sized home improvement projects—especially when you don’t have home equity. However, unsecured status usually means higher interest costs and no home-interest tax benefit. Evaluate alternatives, compare offers, and match the loan term to your budget and goals.

Professional disclaimer: This article is educational and not personalized financial or tax advice. For decisions that affect taxes, mortgage qualification, or long-term financial planning, consult a licensed financial advisor, lender, or tax professional.

Related reading:

Sources and further reading:

(Updated April 2025.)