What is a personal loan?
A personal loan, also called an unsecured loan or a signature loan, is a lump sum fixed loan amount given to a qualified borrower that is not secured by residential property or collateral. You can use a personal loan for any home improvement activity like adding square footage, renovating an existing space with no change to walls, or expanding a home by moving walls.
Prerequisites for sanctioning personal loans
Record of timely repayments in the past
Legal US resident
A permanent job with a steady source of income
Verifiable account with a reputed bank
A low debt-to-income ratio -- usually, below 35%
620 or higher (300-575:Poor, 580-669:fair, 670-739:good,740-799:very good, 800-850: exceptional)
When should you go for a personal loan?
Personal loans are perfect when you don’t wish to put your home at risk, since they are unsecured. Therefore, you don’t require any collateral -- in the form of your property -- while applying for this category of home improvement loan. In case of secured loans, the bank may seize your property if you default in your monthly payment(s). Moreover, if there’s a hit in the real estate market, you may owe more than the actual worth of your home in the long run.
Note: No collateral means higher interest rates. It is also ideal when you don’t have the required equity to apply for other loan options. For example, if the worth of your home is $3,00,000 but you still owe $2,00,000, then your equity value is $1,00,000. In this case, you may get a home equity loan for the entire $2,00,000 -- which might come at a higher interest rate. Hence, under this circumstance, a personal loan is the better bet.
Not only this, personal loans are flexible. You can use them for a number of projects. Therefore, if you want cash for more than one small repair, this is the right choice! Moreover, the life of the loan comes with a fixed interest rate and a longer payback term. So, it’s ideal if you wish to fit in your monthly installments into your budget and plan the repayment term for up to 6 years.
Additionally, when you want quick cash, personal loans are the go-to alternative. They don’t have any requirement from the bank to appraise your home. Hence, the process is much faster. Furthermore, if you want a small amount, then always go for a personal loan. When you don’t have the time to spend innumerable hours on the paperwork for a home equity loan, this is the best option. You can get loan amounts at as low as $2500