- Personal loans are fast and don’t use your home as collateral, but typically cost more than home-equity borrowing.
- HELOCs and home equity loans usually have lower rates but take longer, have closing costs, and put your home on the line.
- Get contractor quotes first so you borrow the right amount, and keep a buffer for overruns.
Whether you’re replacing a roof, remodeling a kitchen or finally fixing the deck, how you pay for a project affects its true cost. There’s no single best home improvement loan. The right choice depends on the size of the project, how much equity you have, how quickly you need the money, and how much risk you’re comfortable with.
Your main options compared
| Personal loan | Home equity loan | HELOC | Cash-out refinance | |
|---|---|---|---|---|
| Collateral | None (usually) | Your home | Your home | Your home |
| Rate type | Fixed | Usually fixed | Usually variable | Fixed or adjustable |
| How you get funds | Lump sum | Lump sum | Draw as needed | Lump sum, replaces mortgage |
| Speed | Often days | Weeks | Weeks | Weeks |
| Closing costs | Possible origination fee | Often | Often | Yes, similar to a mortgage |
| Needs equity | No | Yes | Yes | Yes |
| Best for | Small–mid projects, little equity, speed | One big project with a known cost | Phased projects, uncertain costs | When a new mortgage rate also makes sense |
When a personal loan makes sense
- Your project costs less than you’d want to tie to your home, for example a bathroom refresh or new appliances.
- You recently bought your home and don’t have much equity yet.
- You need the money quickly, such as for an urgent repair.
- You don’t want to risk your home if your finances change.
Example: $20,000 over 60 months at 10.00% APR = about $424.94 per month, $5,496.45 in interest, $25,496.45 in total. At 15.00% over 36 months, a $10,000 project loan costs about $346.65 per month and $2,479.52 in interest.
When home equity may be cheaper
Because your home secures the debt, home equity loans and HELOCs often carry lower rates than unsecured loans, and they can fund much larger projects. Lenders typically limit total borrowing (your mortgage plus the new loan) to a percentage of your home’s value. Factor in appraisal and closing costs, and remember that falling behind could lead to foreclosure. With a HELOC, a variable rate means your payment can rise.
Other ways to pay
- Contractor or retailer financing: convenient, sometimes with promotional 0% periods. Read the terms carefully; some “deferred interest” plans charge all the interest back if you don’t pay in full in time.
- 0% intro APR credit card: workable for small projects you can repay within the promo period.
- FHA Title I or energy-efficiency programs: government-backed or utility programs may help with certain improvements; check with your lender or utility.
- Savings: no interest at all, as long as you keep an emergency fund.
How to borrow the right amount
- Get at least two or three written quotes from licensed contractors.
- Add a contingency, often 10%–20%, for surprises behind walls and under floors.
- Check whether you need permits and include their cost.
- Use our personal loan calculator to test payments for different amounts and terms.
- If a loan has an origination fee, make sure the amount you receive covers the project.
Taxes
Interest on an unsecured personal loan is generally not tax-deductible. Interest on home-equity debt used to buy, build or substantially improve your home may be deductible in some cases. Rules and limits apply, so check IRS Publication 936 or a tax professional.
Compare lenders in our guide to the best personal loans.
Frequently asked questions
Is a personal loan good for home improvements?
It can be for small to mid-size projects, when you have little home equity, or when you need money quickly. It doesn’t put your home at risk, but rates are usually higher than home-equity options.
Do I need home equity for a home improvement loan?
Not for an unsecured personal loan. HELOCs, home equity loans and cash-out refinancing all require equity.
Is interest on a home improvement loan tax-deductible?
Interest on an unsecured personal loan is generally not deductible. Interest on home-equity debt used to buy, build or substantially improve your home may be deductible in some cases; check IRS Publication 936 or a tax professional.