Small personal loans can be relatively easy to get hold of, making them a fast and flexible financing option. Used wisely, they can even help you save money!
But, if they’re ‘small’, how can they help you construct your dream home? Surely you need a bigger sum of money?
Well, yes. But there are ways you can use them tactically to get exactly what you want. And they’re (generally speaking) much easier to get hold of than a mortgage, with a lot less paperwork.
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How Much Can I Borrow?
As with any lending, the amount you’ll actually be able to borrow depends on your own situation. If you have a bad credit history, for example, you might be seen as a bit more of a gamble by your lender, so they might restrict what you can borrow.
You might want to do a little research and check your credit file before applying for a loan, to make sure there’s nothing that might hold your loan up.
But don’t worry – if you do spot something untoward, you can still get hold of loans. It just might be a little trickier without the help of a specialist lender.
1. Small Personal Loans are Flexible
Suppose you need cash, to cover ad hoc building expenses or part of the larger build cost. You might be able to take out a small personal loan to cover that cost, rather than adding to, or taking out, a mortgage loan.
You’ll pay back monthly installments, but they also allow you to pay back extra amounts any time you like. It’s quite likely that you’ll pay what’s known as an ‘Early Repayment Charge’ or ‘ERC’ for making an extra payment.
But when you do the math, it’s quite possible that even after paying that, you’ve still saved money over just paying your installments until the end of the term.
Their flexibility is part of the reason they’ve become so popular in the USA today.
2. It’s (Generally) Cheaper Than a Credit Card
If you have a decent (or even middling) credit history, it’s normally possible to get a credit card limit of up to tens of thousands of dollars.
That might sound like an easy way to get cash when you need it – and it can be. However, you’re setting yourself up for a fall in terms of the interest rates on offer.
If you’re covering large construction expenses with a credit card, you could expect to be paying anywhere upwards from around 14% in interest. The average rate for credit cards in America currently sits at around 17%.
Now, as for everything else financial, the rates you actually get offered depend on your personal circumstances. Your lender will do a thorough credit check before deciding what to offer you.
Having said that, even the most expensive personal loans tend to fall into rate bands much lower than 10%. Which means you’re likely to save a lot of money in the long run.
3. They Create Bridges for Budgeting Gaps
Managing a house building project can be really stressful, so it’s easy to overlook a thing or two. And sometimes, the expenses can rack up beyond what was originally expected.
Say you’ve taken out a construction loan for the project. This type of loan is paid directly from your lender to the construction company and is generally paid in tranches upon completion of work phases.
If the construction company couldn’t complete a phase of work – let’s say, they need extra materials to complete your roof – the lender might not pay out the next installment to them.
Which leaves you stuck in the middle.
In our example, you could use a small loan can help you cover the expense of the materials your builders need. They’ll then be able to complete the phase of the project, and the lender would pay out for the next piece of work. Problem sorted.
4. You Can Extend Your Budget Too!
This is your dream home. You don’t want to cut corners. You want everything to be perfect.
But if you’ve already agreed to borrow from a bank (or another big lender), they might not be too keen if you come back to ask for more later on.
They’ve already got you on the books, they’ve agreed what to lend you – they might not see the extra risk of extra lending as a good thing. Particularly before your project has even been completed.
So if you’ve changed your mind about your dream kitchen, and you’ve got your eye on a beautiful marble work surface (a step up from the granite you’d settled for), you could try using a personal loan to cover the difference.
You can then pay directly for the materials yourself, and have your construction company fit the new worktop instead.
5. Your Dream House Might Not Be Far Away
Let’s stop and think about this for a moment.
Sure, constructing the house of your dreams from scratch sounds great. But are you really that unhappy where you are now?
You probably have friends and family in the neighborhood, a job nearby, and you love your house – because it’s your home. So if you’re thinking about moving because you’re running out of room (perhaps you’ve got a baby on the way and need extra space) take a second to think.
Why not take out a personal loan and use it to extend your current property? Or use the money to pay for an attic conversion?
These are often more practical solutions. And while not entirely stress-free, it sure is a lot less stressful than moving home. That’s regularly named as one of the most difficult situations in a person’s life!
6. They’re Not Backed by Your Home
We mentioned mortgages a little while ago.
These are relatively low-interest loans for large amounts of money. The key difference, though, between a personal loan and a mortgage, is that a mortgage is tied to your house.
You must pay back the amount you borrow for your mortgage, known as the principal. Otherwise, the lender can take you to court and get an order that lets them repossess your house.
Now, not paying back a personal loan still has its downsides – the lender might still take you to court, and you could end up with black marks on your credit record. But hey, at least your home isn’t on the line.
7. They Can Cover Your DIY Costs
A lender is very unlikely to provide or add to a mortgage loan to help you take on DIY improvements to your home, new or old.
But if it’s a smaller loan, they’re less likely to be bothered.
So if you’re a skilled DIY-er looking to cut project costs by putting your own hands to work, a small personal loan can help you pay for all the materials and tools you’ll need.
This can be a really smart way of cutting your project costs – even if you’re pitching in with relatively small and easy jobs like painting walls or sanding materials to make them ready for use.
Build-your-own Versus Pre-Built
If you’re thinking, “why not just buy a ready-built house?”, that’s a fair question. Sometimes, a mortgage on one of those might be better (though go and read tip 6 for more details on that). It just depends on who you are and what you earn.
But often, building your own house is actually cheaper – and you get exactly what you want. It does, of course, depend on where you’re building, the cost of the land, and the local neighborhood.
And even if you buy a pre-built home, you might have to do some renovation work on it and end up getting personal loans to cover the cost anyway.
Take the time to work out what’s best for you, before you plunge in.
Where Can I Get Small Personal Loans?
From banks and other lenders. But you can save time by looking around and asking for offers by talking to Bonsai Finance.
We can help you secure up to $15,000 from a lender for your dream home project, so you can carry on getting the work completed.
And we specialize in finding match-ups for people who have a less-than-perfect credit history. So don’t worry – if you’ve got a few blemishes on yours, there are lenders out there who will still consider you. We can help you find them.
Rates on small personal loans through Bonsai Finance start as low as 5.49% APR – request your loan today!