How an Unsecured Home Improvement Loan Works

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Using an unsecured home improvement loan can be a very beneficial way to get the money you need for home improvement projects. Improving your home is one of the best things you can do as a home owner because it can build equity quickly. It is typically beneficial to invest the money back into your home. If you do not have anything that you can offer for collateral, it may be necessary to find an unsecured home loan. Here are the basics of how an unsecured home improvement loan works.

Find a Lender

The first step in getting an unsecured home improvement loan is to find a lender that offers them. Not all lenders like to work in unsecured home improvement loans and you may find it difficult to find one. If you do not find one after looking at one or two lenders, do not give up. There are loans like this out there. You just have to know where to look. Once you find a lender that offers this type of program, you need to apply. The application process is pretty standard and can usually be done in a few minutes. 


Since you are not using any collateral to secure this loan, the lender is going to expect a little more out of you. They will not just give these loans to anyone that comes in the door. You are going to have to display to them that you are very credit-worthy. You will have to have a good credit score and a way to repay the loan. They are going to pull your credit file and examine it closely. They will also want to look at your employment situation and see if you have a steady job. They will call and verify your employment and your salary in most cases. You will have to provide them with pay stubs and W-2's in order to help verify everything. 

Loan Considerations

With an unsecured home improvement loan, they are going to be charging you a higher interest rate than they normally would for a secured loan. An unsecured home improvement loan represents more of a risk for lenders. If you default on the loan, it can be a lot more difficult for them to get their money back. They cannot directly repossess something or foreclose on your house. Therefore, since they are taking a bigger risk with their money, they will want to charge you accordingly for it. Just be prepared to pay a higher interest rate than you may want to pay. 

While the interest rate is higher, the closing costs on the loan are usually lower. There is not as much due diligence because they do not have to check out the collateral as well. There is no appraisal or anything like that to worry about. They just have to check you out thoroughly and the loan will be ready to go.