Should you use a personal loan for renovations?
Kyla Friel, Content Specialist
Updating your home isn’t just about aesthetics; home renovations can improve comfort, functionality, and the resale value of your property. But, they take some financial planning – for many Canadians, borrowing is part of the renovation plan, especially for mid-sized projects where paying the full cost upfront isn’t realistic.
A personal loan is one option for financing renovations, but is it always the right one? Depending on the size of your project, how quickly you need funds, and whether you have access to home equity, other options like HELOCs or credit cards may also make sense.
This guide explains when using a personal loan for renovations is a good idea, when it’s not, and how it compares to other common ways to pay for home improvements.
Key takeaways
- Personal loans can be used to finance renovations without using home equity
- They work best for smaller to mid-sized projects with a clear budget and timeline
- Fixed payments and set terms can make renovation costs easier to manage
- HELOCs or credit cards may be better options depending on cost, flexibility, and project size
Can you use a personal loan for renovations?
Yes, you can use a personal loan for renovations. Personal loans are generally flexible and can be used for most types of renovation projects, from cosmetic upgrades to essential repairs. Unlike home equity products, personal loans don’t require you to borrow against your home, and funds are typically provided as a lump sum shortly after approval.
Because the full loan amount is received upfront, personal loans are best suited for renovations with a defined scope and budget. Projects that require staged funding or ongoing draws may be better served by other financing options, like HELOCs.
That upfront structure matters because renovation costs are rarely static. Even well-planned projects can run over budget due to material price changes, labour delays, or unexpected repairs. When financing a renovation, it’s important to consider not just the initial cost, but whether you’ve built in a contingency buffer and how flexible your borrowing option will be if expenses change.
Financing options that require you to borrow the full amount upfront may result in paying interest on money you haven’t used yet, while options that allow staged borrowing can better align interest costs with actual spending. At the same time, those options often come with trade-offs, such as variable interest rates or longer repayment timelines.
See also: The best personal loans in Canada
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When using a personal loan for renovations makes sense
There are several situations where a personal loan can be a practical way to pay for home improvements.
Smaller or mid-sized renovation projects
Personal loans tend to work best for renovations with predictable costs, such as kitchen or bathroom updates, flooring replacement, appliance upgrades, or minor structural or cosmetic improvements.
For these types of projects, a personal loan allows you to cover the full cost upfront and repay it over time, without needing to rely on revolving credit.
You don’t want to use home equity
Not everyone has access to home equity, and some homeowners prefer not to borrow against their property. Equity-based financing typically requires sufficient equity in your home, which may not be available if you’re a newer homeowner, have a smaller down payment, or haven’t yet paid down a significant portion of your mortgage.
Even when home equity is available, some borrowers choose not to use it. Borrowing against your home increases mortgage-related debt and can expose your property to additional risk if your financial situation changes. A personal loan doesn’t require collateral, making it an option for renters, newer homeowners, or those who want to keep their renovation financing separate from their mortgage.
You want predictable monthly payments
Personal loans typically come with fixed repayment schedules and set monthly payments. This predictability can make it easier to budget during and after renovations, especially if you’re already managing higher expenses while the work is being completed.
With a clear end date, you’ll also know exactly when the renovation debt will be paid off.
You need funds quickly
Compared with home equity loans, personal loans are often faster to apply for and fund. This can be useful for time-sensitive repairs, such as plumbing issues or electrical work, or for planned renovations that need to start on a specific timeline.
When a personal loan may not be the best option
While convenient, a personal loan isn’t always the most cost-effective or practical way to pay for renovations. It may not be the best choice for large-scale projects with high costs, renovations with uncertain budgets or timelines, or situations where you have access to lower-interest home equity financing.
In some cases, the structure of a personal loan — fixed payments and borrowing the full amount upfront — may also be limiting. If monthly payments would strain your cash flow or leave little room for unexpected expenses, it’s worth considering other ways to finance renovation costs.
For smaller or short-term expenses, many homeowners turn to credit cards instead.
Personal loan vs credit cards for renovations
Credit cards are commonly used for smaller renovation expenses, such as materials, fixtures, or contractor deposits. They can work well for short-term costs that you plan to pay off quickly.
For example, someone replacing appliances or buying materials for a small bathroom refresh may use a credit card to cover upfront costs, then pay off the balance within a few weeks. In this case, interest can often be avoided entirely.
If you expect repayment to take longer, a low-interest credit card may help keep borrowing costs down in the short term. However, if a balance remains longer than planned, a balance transfer credit card may be used to move that debt to a lower (or even 0%) promotional rate, provided you qualify and can pay it off before the offer ends.
Credit cards can also offer added value through rewards and purchase protections. Many cards provide cash back or travel points, along with benefits like extended warranties and purchase protection, which can be useful for renovation-related purchases.
However, these benefits are most valuable when balances are paid off quickly. Promotional interest rates are time-limited, and once they end, any remaining balance will begin to accrue interest at standard credit card rates, which are typically much higher than personal loan rates. Carrying a balance longer than expected can significantly increase the total cost of a renovation.
A personal loan may be the better option when renovation costs are larger, when repayment will take longer than a few months, or when you want a clear repayment plan. With a fixed loan amount and set repayment schedule, personal loans can help you manage renovation costs without the risk of carrying an open-ended balance.
Personal loan vs HELOCs for renovations
A home equity line of credit (HELOC) is a common way to finance renovations, particularly larger projects. Because HELOCs are secured by your home, they typically offer lower interest rates than personal loans and allow you to borrow funds as needed throughout the renovation process.
For example, a homeowner planning a $60,000 kitchen renovation may use a HELOC to draw funds gradually as work is completed, rather than borrowing the full amount upfront. This can be helpful when renovation costs are spread out over several months and the final budget isn’t fully known at the start.
However, HELOCs usually have variable interest rates, meaning payments can increase if rates rise – though some lenders may allow you to convert your borrowed funds into a fixed rate, to avoid any interest changes. They also require sufficient home equity and involve borrowing against your property, which adds risk if your financial situation changes.
A personal loan may still make sense if you don’t have access to home equity, are financing a smaller renovation with a defined budget, or prefer predictable payments. Unlike a HELOC, which is a form of revolving debt, a personal loan comes with a fixed repayment schedule and a clear payoff date, which can make it easier to budget once the renovation is complete.
What to consider before taking out a renovation loan
Before borrowing a personal loan for renovations, it’s important to look beyond the project itself and consider how the loan fits into your overall financial picture.
How much you’re likely to get approved for
Personal loan approval amounts depend on factors such as your income, credit score, and existing debt. Importantly, the amount you qualify for may not match your renovation budget. Confirming your realistic borrowing limit early can help you scale your project appropriately or identify funding gaps before work begins.
Total renovation cost vs total loan cost
It’s easy to focus on the upfront renovation cost, but borrowing also comes with interest. Comparing the total cost of the renovation with the total cost of the loan over time can help you understand what you’re really paying and whether the project fits your budget.
Monthly payment affordability
Renovation loans add a fixed monthly expense to your budget. Before borrowing, consider whether the payments are affordable alongside your existing bills, savings goals, and other financial obligations, even if your income changes.
Renovation ROI vs personal value
Some renovations may increase your home’s resale value, while others mainly improve comfort or functionality. Thinking about whether the project adds financial value, personal value, or both can help you decide how much it makes sense to borrow.
The bottom line
A personal loan can be a practical way to pay for renovations, particularly for smaller to mid-sized projects or when home equity isn’t an option. As with any borrowing decision, comparing costs, repayment terms, and alternatives can help you choose the option that best fits your renovation plans and financial situation.