4 Factors to Consider While Opting for Home Improvement Loan
Many homeowners consider renovating their home to upgrade it with the latest facilities, give it a trendy look, repair parts, or modify it according to their changing family needs. However, many of them keep the project on hold due to a lack of funds. You don’t need to do that any longer since numerous NBFCs offer personal loans for home renovation these days.
A home renovation loan is an excellent financing option to remodel your house. Whether you wish to change your tiles, colour, or flooring, extend a part, or renovate your bathroom and kitchen, home renovation is a costly affair that requires a good amount of money. This is when you may take a personal loan to cover your expenses. However, don’t forget to consider these four factors while opting for a loan.
1. Interest Rate
Interest rate is one factor that makes up the total cost of your home improvement loan. Different lenders charge varying interest rates on their loan offers. The interest rate you need to pay depends on the loan amount, repayment tenure, credit score, debt-to-income ratio, and other factors. The higher the interest rate your lender charges, the higher your total loan cost will be. Therefore, you need to find a lender offering competitive interest rates in the market.
A personal loan interest calculator is an excellent tool that helps you calculate your interest outgo according to your loan amount, repayment tenure, and the interest rate the lender offers you. Using this calculator, you can calculate the interest cost on your personal loan and adjust the loan amount and repayment tenure suitable to your repayment capacity.
2. Loan Requirement
Before applying for a loan, you must calculate your expenses and decide what loan amount you need to borrow. Consult your contractor or manually calculate the project cost to estimate the funds required for your home renovation project. You should not overborrow since it will only add to your loan burden and increase the interest outgo. It is also important to borrow a sufficient amount so that you do not fall short of cash in the middle of your project.
Once you get an idea of your expenses, you can apply for a home improvement loan, knowing you don’t borrow too much or too little. Consequently, you can quickly meet your expenses and use your loan amount to address your home improvement goals.
3. Repayment Tenure
Most personal loan lenders offer flexible repayment terms ranging from a few months to years. The lender distributes your total loan cost into equated monthly instalments that you must pay over the loan tenure you select. The longer the loan term you opt for, the smaller will be your EMI amount and the easier will be their management. However, it will keep you indebted for longer and increase your total interest outgo. Meanwhile, if you select a shorter loan term, your EMI amount will be larger, but you will save on the interest outgo and become debt-free sooner. Therefore, the best trick is to select the shortest repayment tenure possible with the EMI amount you can conveniently adjust in your monthly budget.
A personal loan EMI calculator is a valuable tool that helps you calculate your EMIs according to the loan amount and repayment tenure you choose. Enter your loan amount, interest rate, and tentative loan tenure, and the tool will display your EMI amount on your screen. You can adjust the loan tenure according to your repayment capacity until you find the EMI amount most suitable for your repayment capacity.
4. Credit Score
Your credit score matters a lot when it comes to applying for a home renovation loan. It is an unsecured personal loan that lenders offer without any guarantor, security, or collateral. Therefore, they check your credit score to determine your creditworthiness. Your credit rating ranges from 300 to 900, which indicates your repayment history, DTI and credit utilisation ratio, credit length, and overall credit behaviour. The higher your score is, the more trustworthy the lender perceives you for lending a loan.
Most lenders have a minimum credit score requirement of 700-750 to approve loan applications. They determine your loan eligibility, loan amount, and interest rate based on your credit score. The higher your credit score is, the better loan terms you will get. Therefore, you must check your credit score before applying for a personal loan for home renovation.
Once you decide to renovate your home according to your requirements and preferences, compare lenders to get the best loan offer suitable to your project and budget. The research will help you make a prudent decision regarding your home improvement loan. Simultaneously, create a budget and make a robust repayment plan to improve your credit score with regular EMI payments. Selecting a loan using a personal loan interest calculator will help you renovate your home without the expenses becoming a burden on your finances.