It's Home Improvement Season. 3 Ways to Borrow Affordably for Your Upcoming Renovation

Now that spring is in full swing, a lot of people are starting to tackle the home improvement projects they've been putting off. You may want to put in a new deck, replace your crumbling fence, or give your landscaping a makeover. 

All of these are great projects to tackle now that the weather is warmer and more cooperative. But if you don't have enough money in the bank to pay for your home improvements outright, you may have no choice but to borrow some. Here are some reasonably affordable options to look at.

1. A home equity loan

With a home equity loan, you borrow a set amount of money based on the equity you've built up in your home. The upside of going this route is that you'll be able to lock in a fixed interest rate on your loan, making your monthly payments nice and predictable. 

But there's a danger to taking out a home equity loan, and it's that if you fall behind on your payments, you could eventually risk losing your home. So before you sign one of these loans, read the details carefully. Understand the terms of your loan, what your repayment period looks like, and what your individual monthly payments will entail.

2. A home equity line of credit

A home equity line of credit, or HELOC, works similarly to a home equity loan. Only instead of borrowing a fixed sum, you get access to a line of credit you can tap over a period of time -- often, five to 10 years. 

The benefit of taking out a HELOC is getting more flexibility. If your home improvements cost more than expected, you can take more money out of your HELOC. If they're cheaper than anticipated, you can simply withdraw less and have less to pay back.

But HELOCs have their drawbacks, too. Like home equity loans, falling behind on a HELOC could put you at risk of losing your home. And also, unlike home equity loans, HELOCs tend to come with variable interest rates, not fixed. This means that while your payments might start off affordable, things have the potential to change over time as your HELOC's interest rate climbs.

3. A personal loan

A personal loan allows you to borrow money for any purpose. And unlike home equity loans and HELOCs, these loans are unsecured. This means that if you're a homeowner but fall behind on your payments, you don't run that same risk of losing your home (though you do risk other big consequences, like extensive credit score damage).

Also, because personal loans are unsecured, lenders take on a bit more risk. As such, you might need really good credit to snag a competitive borrowing rate on a personal loan. And also, you might end up with a higher interest rate than with a home equity loan or HELOC (at least initially).

That said, personal loans are a very popular way to borrow. As of the first quarter of 2023, U.S. personal loan balances came to a whopping $225 billion, reports TransUnion. So clearly, a lot of consumers are turning to these loans, which makes them an option worth considering.

Many homeowners can't afford to pay for renovations outright and need to borrow for them to some degree. It's okay to go this route as long as you understand what terms you're signing up for, and as long as you're taking on payments you can afford. But if you're not sure whether that's the case, you're better off postponing your renovations or finding a lower-cost approach.