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Generally, home improvement loans are home equity loans specially designed to provide the funds for home improvements. Sometimes, in order to provide a revolving source of funds to meet the funding requirements of home improvement plans that usually have to be changed during the actual improvements, these loans take the form of home equity lines of credit instead of loans.
In any case, these loans are secured on a property (generally the same property being improved). Since the house is used as collateral of the loan, if for any reason you can't meet the monthly payments, you risk repossession of the property and thus, loosing your home and the money invested in it.
Thus, unless the magnitude of the home improvements requires a huge amount of money, it is better if you resort to unsecured personal loans. These loans though may be a little more expensive, don't carry with them the risk of repossession so you can feel at ease knowing that you won't loose your property if you can't meet the monthly payments.
Small home improvement like painting, refurnishing, fixing a roof, adding a pool, etc. can be easily afforded with a small unsecured personal loan. So, unless you have to make too many improvements or expensive ones like changing the floor, redesigning room dispositions or adding new rooms or floors, it is a smarter choice to request an unsecured personal loan.
Contrary to common belief, the interest rate charged for unsecured personal loans is not that higher than the one charged for secured loans like home equity loans. The interest rate is only slightly higher. The same goes to the loan length. An unsecured personal loan can be repaid in up to 10 years. A home equity loan (with any luck) can last at most, 15 years.
And the risk you are taking by requesting an unsecured personal loan is comparatively lower than that you take by applying for a secured loan. The risk of repossession is not present and thus you have a lot more flexibility in case you need to negotiate new loan terms if something unexpected happens.
Also, the credit and income requirements you need to meet to apply for an unsecured personal loan are significantly less harsh than that of home equity loans or lines of credit. In most cases, you won't need to prove your income since banks and lending institutions offer pre-approved unsecured personal loans to clients with a certain history with the institution.
As regards to credit score or history, the most important issue is your credit history with the bank you are requesting the loan from. Most lenders may not even check your credit report from bureaus if they have an impeccable credit history in their records. Thus, for small home improvements, the best choice is to go for unsecured personal loans.
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