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How to Finance Emergency Home Repairs

Updated
Dana George
Ashley Maready
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As any homeowner knows, things tend to break -- and when that happens, a personal loan can help. Here, we'll discuss how much the average home repair costs, how the best personal loans work, and other options for covering the unwelcome expense.

How much emergency home repairs cost

The cost of emergency repairs depends on how large the repair project is. For example, repairs to your heating, ventilation, and cooling (HVAC) system can cost up to $6,000. If you need a new water heater, you can expect to pay over $1,000. And if your home has suffered water damage, you may face a repair bill as high as $25,000.

Getting an emergency home repair loan

Personal loans can be an ideal way to fund repairs, especially if you have larger repairs to make to your home. While some lenders specifically market personal loans as renovation loans, you can apply for any personal loan and don't have to restrict yourself to those options alone.

Compare the best personal loans

Get the best rates and terms to fit your needs. Here are a few loans we'd like to highlight, including our award winners.

Lender APR Range Loan Amount Min. Credit Score Next Steps
Fixed: 8.99%-29.99% APR (with all discounts)
$5,000 - $100,000
680
7.99% - 24.99%
$2,500 - $40,000
660
7.80% - 35.99%
$1,000 - $50,000
300

How a personal loan for emergency repairs works

A personal loan is money you borrow from a lender and repay with interest, typically in equal monthly installments. Once you've determined how much repairs will cost, you borrow the funds from a lender, and the funds are disbursed in a single, lump-sum payment.

Pros and cons of personal loans

If you're considering a personal loan to make home repairs, it's wise to weigh the pros and cons.

Pros

  • You can borrow all the money you need to make repairs, with some lenders offering loans as high as $50,000 to $100,000.
  • Personal loans may be secured or unsecured, meaning you can choose which type of loan works best.

Cons

  • You'll pay interest on the loan, and if your credit score is low, your interest rate may be higher than expected.
  • A new bill is added to your monthly budget.
  • If you decide to take out a secured loan to land a lower interest rate, you risk having the asset repossessed if you miss payments.

Weigh all these factors to decide if getting a personal loan to cover your home repairs is a good idea.

Getting a low-interest emergency repair loan

Any time you borrow money, the goal is to land the lowest possible interest rate. Here are some of the factors that go into deciding your rate.

Your credit score

The higher your credit score, the better your chances of landing a low interest rate.

Employment and income

Lenders ask for proof of employment status and how much money you earn. What they're looking for is assurance that you earn enough money to make monthly payments.

Secured or unsecured

Any time you opt for a secured loan, you must put something of value up as collateral -- like a retirement account or vehicle. While you're likely to land a lower interest rate, you risk losing the collateral to foreclosure if you miss payments. Be sure to carefully consider the risk before taking out a secured loan, even if the interest rate is lower than the rate you'd pay on an unsecured loan.

Your repayment timeline

Lenders consider longer-term loans riskier than shorter-term loans because there's more time for things to go wrong with your finances and for you to stop paying on the loan. They may offset the additional risk by charging a higher interest rate. Choose the shortest loan term you can easily afford to repay.

How to apply for an emergency repair loan

Financing home repairs can be fairly uncomplicated. Here's how it works.

1. Check your credit score

The higher your score, the better the interest rate and repayment terms you will be offered. Before you do anything else, check your credit score and order a copy of your credit report. If it's low, take steps to raise your credit score.

2. Decide how much you want to borrow

If you're working with a contractor, get a written estimate of repair costs. If you're making repairs yourself, list all the tools and supplies you'll need to complete the project and find the best prices.

3. Rate shop

Once you know how much money you'll need, it's time to rate shop lenders. Remember that interest rates only tell part of the story. Also look at the APR, which includes interest, fees, and other charges. Be aware that potential lenders may conduct a hard credit inquiry, which will slightly ding your credit score. However, making regular, on-time payments will cause your score to rebound.

4. Decide on a lender

Once you've determined which lender offers the lowest APR and best repayment terms, read over the loan agreement and ask for clarification if there's anything you don't understand. Sign the loan agreement, await loan proceeds, and make your first payment approximately one month later.

Alternatives to a personal loan

As you consider the pros and cons of using a personal loan to pay for repairs, you may also want to consider alternative payment methods.

Putting repairs on a 0% promotional rate credit card

If you have a strong credit score, you could save on interest by applying for a 0% intro APR credit card. These cards have special promotions where you pay no interest for a set period, typically between 12 and 24 months. You'll want to pay off the balance before the promotional period expires to avoid high interest costs.

Using a home equity loan

If you have equity in your home, you can borrow against it to make home repairs. The upside is that home equity loans typically carry a lower interest rate than personal loans. The downside is your home serves as collateral, and if you miss payments, it can be repossessed.

Taking out a payday alternative loan

Some homeowners turn to payday loans to cover emergency repairs, but this is a very bad idea because the APR on these loans can be upward of 400%. There's another option for credit union members who need to borrow a small amount for repairs: a payday alternative loan (PAL).

Paying with cash from an emergency fund or home repair fund

If you have an emergency fund, you can take money out to fix whatever problems crop up. However, it's a smart idea to have a dedicated savings account where you put money each month or each year to cover repair costs that inevitably arise.

Final thoughts

There are several options for paying for emergency home repairs, including personal loans, credit cards, home equity loans, payday alternative loans, and your personal emergency fund. You just need to consider which type of financing makes the most sense, given the credit available to you and the amount you need to borrow.

FAQs

  • Based on your monthly budget, you can borrow as much as you'd like. However, the more you borrow, the more you'll pay in interest -- and those interest payments may be better used to build an emergency fund to help you tackle future unplanned bills.

  • Checking your credit score is one of the only ways a lender can determine how well you've managed debt in the past. It not only impacts whether you're approved for a loan, but it also determines how much you'll pay in interest and loan fees.

  • There's nothing like setting aside a little money each month to build an emergency fund. Experts suggest aiming for an emergency account with enough money to cover three to six months' expenses. You won't get there overnight, but you can build your emergency savings a little at a time.