Home Finance Should Personal Loans Be Used For Home Renovation?
Should Personal Loans Be Used For Home Renovation?

Should Personal Loans Be Used For Home Renovation?

by Reddy Prasad (Admin)

It is a thought you have been putting in the backseat for years, but with the leaking roof over your head, it is tough to avoid. There is zero denying that renovation of a home is costly and can result in minor setbacks in finances. Unless you have prepared yourself for the situation, you are not likely to have adequate funds saved up for it. While you always can avail a personal loan to fund your home renovation plan, let us understand first if it is a good decision to opt for it in the first place.

Should you avail of a personal loan for your home renovation plan?

Whether you must use the personal loan for your home improvement massively depends upon the loan amount that you require and the interest rate at which the loan proceeds. It may be a prudent idea to work on the trade-off before you make up your mind regarding availing of a personal loan. Personal loan interest rates can range anywhere between 9 % and 24 % p.a. While a low personal loan rate can assist you to cope with the rapid demand on finances due to home renovation, a high personal loan rate may prove to be extremely costly.

One benefit of personal loans is as they are unsecured in nature, you will not require putting up your home or any other asset as security or collateral when availing the loan for home renovation purposes. However, for the same reason, they come with a high rate of interest. Thus, avail of personal loan only if there is a requirement for home renovation.

When must you avail a personal loan for a home improvement plan?

There are many banks that provide personal loans with various promotional offers like zero percent interest for 6 months etc. Such kinds of personal loans may prove to be economical; however, remember to check if you make full repayments on time, or else the higher interest rates can cause a dent in your financial stability. As with financial instruments, it makes complete sense to shop for the prudent loan offers in town before choosing one. Comparison sites show you tailor-made offers that you may qualify for on the basis of your preferences and needs from various lenders so that you can select the option as per your preference.

A personal loan can even come in handy when there is any unexpected expenditure. No matter how much you plan out things to the minutest of detail, home renovation expenses can just be tentative till the work really begins. Most plumbers, contractors and electricians will just provide you with an estimate when fixing your leaking roof. Also, your contractor may bring up something that requires an urgent fix, like a pipeline in your washroom. To meet such unanticipated expenditures, you might want to avail yourself of higher loan proceeds.

Here are a few of the other benefits of using a personal loan for the home improvement purpose:

Loan flexibility: You can use the personal loan for any reason, may it be fixing your roof, kitchen remodelling or something small as repairing windows. How you use your finances is totally upon you.

Swift funding: If you are placing an online application, funds might become available in less than 2 days from a few lenders.

Alternatives to personal loan

While a personal loan might offer compelling choices to fund your home amelioration project, it might not be the only option. Here are a few alternatives to a personal loan to finance your home renovation.

Credit card

You can avail of credit cards to fund your home improvement project. In case you have been a long-standing bank customer, you can negotiate to get a better offer like a credit card with zero percent APR on the purchase offer. It can assist you in funding your home renovation without incurring interest. However, you should make sure that you repay the outstanding amount in full before the APR period expires. Otherwise, you will have to bear a high interest on the rest of the balance.

Cash

If you do not want to avail any debt and anticipate that you will require undertaking home renovation in the upcoming 4 to 6 months, you can begin saving the cash from now onwards. At first, it might appear tough. However, it comes with various benefits, and the obvious ones are you do not require paying any interest on the loan. If you are taking up a project that can be done in phases, you can begin the next phase when you get adequate funds. When you are shopping for a personal loan, note that you must look out for crucial facets like the hidden charges such as part payment or prepayment penalty etc., so that you do not get any nasty surprises when repaying the loan. Determine how much you require for your home renovation plan and borrow just the amount in place of borrowing more than your repayment capacity.

How much CIBIL score is required for personal loan approval?

CIBIL score ranges anywhere between 300 and 900. A score of 750 is ideally the minimum CIBIL score for a personal loan. Having this score can help you to get a better loan deal. Also, you can avail a better credit card deal. Thus, maintaining a CIBIL score of 750 and above is a must for an excellent deal. Not just can you avail personal loan but also other loans with a CIBIL score of 750 and above. According to the CIBIL data, 80 percent of the loans are approved if the CIBIL score is 750 or more.

Lenders require being sure about your potential to repay the borrowed amount before approving your personal loan application. Your score assists you to evaluate your default risk. Having a high credit score also suggests that you are a responsible borrower and ensure to repay your credit card and loan EMIs by the due date. A lower CIBIL score enhances your default risk; as a result, the lender views you as a risky applicant.

To calculate credit score, bureaus often ask for your credit-linked data from your lenders or creditors. Thus, ensure to always follow a healthy credit behaviour for a good credit score and instant loan approval.

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