Using a short-term personal loan to pay for home renovations

Got a short-term home reno project in the works? Whether you’re redoing the tiles in the bathroom or upgrading your kitchen benchtop, a personal loan can be useful for a quick and relatively simple finance option to fund tweaks around the house.

There are many different ways to pay for a home renovation project. While dipping into your home loan redraw facility might seem like an obvious first choice, another option worth considering is taking out a personal loan to fund your project. But is it the right option for you?

Let’s take a look at some of the different pros and cons of paying for a home renovation project with a personal loan. But before we do:

What is a personal loan?

Before we get into the nitty-gritty, you might be wondering – what is a personal loan? A personal loan allows you to borrow a lump sum of money and then repay that amount (plus interest on top) in regular repayments over a set period of time (usually between 1 and 5 years). 

Personal loans are generally used for amounts between $2,000 and $100,000, which are too big to put on a credit card.

Here are some of the pros of using a personal loan to pay for a home renovation project:

• Flexibility: Personal loans are a generally flexible loan type that can typically be used for most types of renovations, from minor updates to major revamps.
• Faster funding: Once approved, the funds will typically land in your account quite quickly, often within a few days – meaning you can start your renovation project quicker.
• Fixed-rate options: Most personal loans offer the choice of either a fixed or variable interest rate. Depending on your individual financial circumstances, opting for a fixed rate could be a good option if you’re after the certainty of knowing exactly how much your regular repayments are – making it easier to budget.
• No collateral required for an unsecured loan: If you opt for an unsecured personal loan, you won't have to risk losing your home, car or other asset by using them as collateral against the loan – like you might with a secured loan.

Let’s take a look at some of the cons of funding a home renovation project with a personal loan:

• Higher interest rates: Personal loans (especially unsecured loans) typically come with higher interest rates than other finance options, so they might be more expensive than using a home loan redraw facility, for example.
• Smaller loan amounts: Personal loan amounts can be anywhere between $2,000 and $100,000, although it’ll depend on the lender. This might not be an issue if your project budget fits within this range – however, it could become a hindrance if you want to do more extensive renovations.
• Shorter repayment terms: Personal loans typically come with shorter repayment terms (usually 1 to 7 years). This means that, depending on the size of the loan, your regular repayments could be quite high, potentially putting more strain on your budget.
• Impact on credit score: Taking out a loan is marked on your credit report. Any late or missed payments can also negatively impact your credit.

A personal loan can be a convenient and flexible option for financing home renovations; however, as with most financial products, it comes with a range of pros and cons. The finance option that’s best for you will ultimately depend on your specific circumstances.

Before making a decision, be sure to compare different loans, lenders and other finance options – and remember to consider your financial situation and renovation needs.

Head to our personal loans hub to learn more about and start comparing personal loans today.