When it comes to financing home remodelling, consumers can choose between Home Renovation loans and personal loans.  This article sets out the main differences between these types of loans and provides a guide on what to consider when taking out a loan for home renovation purposes.

Home Renovation loans are usually payable over a relatively long time period, typically between five and fifteen years and in some cases up to twenty years.  Personal loans, on the other hand, normally have a shorter repayment period of between one and seven years.   Both types of loan offer are available with variable or fixed interest rates.

A renovation loan often has a lower fixed rate of interest than an unsecured personal loan, but there is often a requirement to secure the loan against the borrower’s home.  In contrast, personal loans offer the consumer the ability to borrow money unsecured and without the risk of losing their home.

Many lenders will offer their existing home loan customers lines of credit for renovation purposes, adding money to the original loan.  In the long-run this can be an expensive option, particularly taking into account any on-going fees and charges.  By taking out a personal loan, which may be approved for up to $50,000 for home remodelling purposes, the borrower can avoid these extra costs and charges.

It is possible to reduce the cost of a personal loan without the risk of losing your home, by securing it on another asset such as your car or retirement fund.  Alternatively, you might consider using a co-signer or guarantor on the loan, in order to benefit from a lower interest rate without the need for a fixed asset as security.

In most situations, the application and approval process for a personal loan is quicker and easier than for a renovation loan.  It is often possible to get a decision on a personal loan within less than a week, while in contrast a renovation loan approval process may require time-consuming home appraisals, inspections and deed searches.  Home remodelling loans also often include many additional fees and charges, which may make them more costly in the long-run.

When investigating loan options, be sure to consider a variety of lenders.  Banks generally offer lower interest rates on unsecured loans than finance companies.  However, it is important to take into account the terms and conditions of the loan and any additional fees and charges, such as penalties for early repayment.