In the concept of loan, the borrower initially receives an amount of money from the lender, which is repaid usually, but not always, in regular installments, with interest on the debt. A home improvement loan is taken to refurnish, remodel, repair, or renovate a house. One can use home improvement loans for external repairs, tiling and flooring, internal and external painting, etc.

The costs of home improvement projects can be paid from savings or by credit or store cards, which are often the costliest ways due to the high interest rates. Paying from savings is the least expensive option. Credit or store cards can be very expensive options if debtor cannot pay on time, as their interest rates can be as high as 25-30%. Credit cards offer rates of around 15-18%. These borrowings must be planned with proper care. A personal loan can be one more option if there is difficulty in planning card borrowings.

The above options can be used for smaller projects, but larger projects obviously require more money, which may not easily be met from either savings or credit cards. Hence, one must try for other options to raise cash to improve a home; these options a further advance on a mortgage, an unsecured loan with flat rate or an unsecured loan with variable rate, or a secured loan. Many major improvements are funded in this manner.

Because the lender has security in a secured loan, the rate of interest is lower. Government home improvement loans also offer lower interest loans. In the case of unsecured loans, the lender has no rights to the assets of the borrower and hence the rates are higher, as are the monthly payments.