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You may not have heard the term “risk-based pricing” before, but you’ve likely seen it in action if you’ve ever gotten a loan or a credit card.

Risk-based pricing is when lenders decide which interest rate and other loan terms to offer a borrower based on that person’s creditworthiness. If the lender believes you may default or struggle to make payments on a loan, for example, you’ll likely be offered a higher rate — or you could be turned down altogether. On the other hand, if your chances of defaulting are low, you can expect to be offered a more competitive rate and better loan terms.

Read on for a look at how risk-based pricing could affect your loan terms and ways to improve your risk profile in order to secure the best rate possible.

Risk-Based Pricing Explained

If you’ve ever applied for a loan or credit card, you’ve probably noticed that everyone isn’t offered the same interest rate and terms. That’s because financial institutions typically use risk-based pricing to determine how much they’ll charge borrowers for the money they lend.

What Is Risk-Based Pricing?

The idea behind risk-based pricing is fairly straightforward: Different borrowers get different rates depending on the level of risk the lender believes it’s taking. This allows financial institutions to provide options to a wide range of consumers while also making sure they’re being compensated for taking a chance on those who may be less creditworthy.

How Risk-Based Pricing Works

A key part of the loan underwriting process is assessing a borrower’s risk profile. Lenders can’t legally consider factors such as age, race, or gender when they’re deciding whether to approve a loan application. But they can — and do — use risk-based pricing models to help determine if a borrower should get a loan and if that loan should cost more or less based on financial criteria.

Lenders want to be as sure as possible they’ll be repaid on time and in full. And though there’s no guarantee a borrower with a good financial reputation won’t default on a loan, lenders typically see it as a solid indicator of a favorable outcome.

This means an applicant with an excellent credit score and other positive financial factors can expect to be offered a lower interest rate than a person with average, fair, or poor credit. This is true whether they’re seeking a car loan, personal loan, or a mortgage.

Creditworthiness can also affect loan fees and repayment terms, and the rewards and perks available with certain credit cards.

Factors that Can Influence Risk-Based Pricing

The criteria used to determine loan eligibility and pricing can vary by lender, but here are some of the factors that are typically included in a risk assessment:

Credit Score

A credit score is calculated using information such as payment history, existing debt obligations, and credit utilization from a current credit report. Lenders typically use this three-digit score as an indicator of a person’s overall financial well-being. The higher your credit score, the more likely you are to be approved for a loan and receive better financing terms.

A score of 670 to 739 is generally considered “good” on the credit rating scale, while scores of 740 to 799 are in the “very good” range, and 800 and above is “excellent.” Individual lenders may set their bar higher or lower when judging credit applicants.

Credit History

To get a more complete look at how you’ve handled credit in the past, lenders may also check one or more of your credit reports for signs of trouble. Potential red flags include past delinquencies, a mortgage foreclosure, bankruptcy, or debts that went to collection.

Income

Your income and employment history also can be a factor in determining risk. Lenders will want to see documentation that shows you earn enough to repay the loan and that you have stable employment.

Debt-to-Income Ratio

Along with your income, lenders will take a look at your debt-to-income (DTI) ratio to ensure you can manage all your debt payments. (You can calculate your DTI by dividing your monthly debt payments by your monthly gross income.) An acceptable DTI may vary by lender and the type of loan you are applying for. But in general, a DTI ratio below 43% is considered good, while many lenders prefer 36% or below.

Loan Type

Lenders tend to look at different types of debt as carrying varying levels of risk. For example, loans that are secured with some kind of collateral or down payment, such as mortgages, car loans, and home equity loans, usually come with lower interest rates than unsecured loans and credit cards.

Impact on Consumers

It may seem as though risk-based financing is all about protecting lenders — helping them minimize their losses by allowing them to tailor their rates to fit an individual borrower’s risk profile. But because it expands the range of lending options to include those with fair or even poor credit, risk-based lending can also benefit those who otherwise might not qualify for financing.

It also can serve as an incentive to consumers to improve their credit reputation in order to improve their loan terms in the future by refinancing, negotiating for a new and better rate on a current loan, or waiting to apply for financing until their credit is in better shape.

Regulations Governing Risk-Based Pricing

How can you know if you’ve been personally impacted by risk-based pricing? The Federal Trade Commission (FTC), Consumer Financial Protection Bureau (CFPB), and federal banking agencies have all published rules stating that if a lender denies a loan application or offers “materially less-favorable terms” based on a consumer credit report, it must provide the applicant with a notice that explains this decision. If you don’t agree with the terms you’ve been offered — for example, if you’re given a higher-than-expected annual percentage rate (APR) — you aren’t obligated to accept the loan.

Recommended: APR vs Interest Rate: What’s the Difference?

Pros and Cons of Risk-Based Pricing

As with most things related to finances, there are benefits and drawbacks associated with risk-based pricing.

Strategies to Improve Your Risk Profile

If you’re trying to build or rebuild your credit, risk-based lending may seem unfair or even punitive. But if you keep working on your financial health, you can eventually replace the missing or negative information on your credit reports with positive numbers.

Here are some steps that can help you boost your credit profile and show lenders you’re worthy of better loan terms:

Pay Off Debt

Paying down high-interest credit card balances and lingering loan debt can help you raise your credit score and lower your DTI — two key factors lenders look at when determining a borrower’s risk. If you’re repaying several debts to different lenders, you may want to look into how debt consolidation works and whether it makes sense for you.

Increase Your Income

If a low-paying job is getting in the way of getting a loan, you might consider taking on a side gig, asking for a raise, or looking for an employer that pays more for what you do.

Monitor Your Credit Score and Credit Reports

Regularly reviewing your credit reports and promptly disputing dated info or errors can help you ensure your credit profile reflects your current financial standing. You can check your credit score for free through your bank, credit card company, Experian, or a money tracker app. And you’re entitled to a free credit report weekly from each of the three credit bureaus via AnnualCreditReport.com.

Choose Appropriate Loan Products

Think about how you plan to use the money you want to borrow and which lending product might be the best choice for that goal. If you plan to make a major purchase, for example, a personal loan might be a better option than a credit card, because interest rates are typically lower.

Recommended: What Is Risk Tolerance?

Do Some Comparison Shopping

You also may be able to save money by taking the time to shop around for the best rates and terms available for the type of loan or credit card you want. Some lenders and loan types may have less-stringent standards for borrowers than others. And while you’re looking, you can read online reviews of the lenders you’re considering.

The Takeaway

For low-risk borrowers, risk-based pricing could mean a lower interest rate and other favorable terms. For a higher-risk borrower, it can result in a more expensive loan — or the loan application being rejected. This is why it’s a good idea to know where your credit stands before you apply for any type of financing. That way, you can be an informed shopper as you look for the best rates and terms based on your current creditworthiness. Or you can work to improve your financial health so lenders regard you as less of a risk.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

How does risk-based pricing differ from flat-rate pricing?

With risk-based pricing, the cost of a loan can be adjusted to fit the creditworthiness of the borrower. With flat-rate pricing, everybody who is approved is charged the same rate, whether they have good, bad, or fair credit.

Can I negotiate better terms if I’m offered high rates due to risk-based pricing?

Whether or not you can negotiate better terms may depend on the type of loan you applied for and the lender. If, for example, you’re a long-standing customer, your lender may be willing to work with you even if you present as a high-risk borrower.

How often do lenders reassess risk for existing loans?

Because a borrower’s risk profile can change over time, lenders may periodically review a customer’s credit score, payment history, and other financial factors. How often that happens varies by lender.

Are all types of loans subject to risk-based pricing?

The rates and terms borrowers are charged for most loan types are based on risk-based pricing.

Photo credit: iStock/MicroStockHub

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q424-002

Adding a shed to your home can mean the difference between rummaging around in a cluttered garage for a tool and having sundry garden tools, outdoor equipment, and off-season lawn furniture all in a designated space. Having a spot to store such items can save time and reduce mental fatigue.

One thing: Sheds can be expensive. According to HomeAdvisor, sheds can cost anywhere from $200 to $30,000 to build, with an average cost of $3,500.

Don’t have the cash on hand to front the costs? Enter shed financing. Here, we’ll walk you through different options for shed financing and alternatives to consider.

Understanding the Cost of Shed Installation

As mentioned, the average cost to build a shed is $3,500. When installing one of these structures, you’ll need to consider factors like size, building materials, labor costs, and details such as windows, doors, and electrical wiring. As you might expect, designing and building a custom shed is more expensive than constructing one from a premade kit.

Figuring out the cost per square foot can give you a general idea of the total price tag. But to determine the true cost of a shed, you’ll want to do your homework to figure out the cost of materials, labor, and permits.

Personal Loans for Shed Financing

A popular route for shed financing is to take out a personal loan. The beauty of personal loans is their flexibility — the funds can be used for essentially anything. Plus, personal loan amounts often start as low as $500, so they can be a good fit for smaller DIY projects like building a shed.

Payment terms on a personal loan are typically between two and seven years, which can provide some breathing room in your budget. And personal loans tend to have lower interest rates than credit cards. As of August 2024, the national average for interest rates on a 24-month personal loan is 12.33%, while the national average for interest rates on a credit card is 21.76%. (Use a personal loan calculator to figure out what the monthly payments might be, depending on the loan term and interest rate.)

If you know the total cost of the shed, you can use the proceeds from a home improvement loan to cover the different expenses. However, be aware that some lenders charge an origination fee, which can be anywhere from 1% to 5% of the loan amount — and sometimes as high as 10%. This one-time upfront fee is taken from your loan proceeds.

A couple of drawbacks of a personal loan include being responsible for monthly payments, which kick in after you receive the loan proceeds. Plus, lenders will need to do a hard pull of your credit, which can cause your credit score to temporarily dip by a few points.

Recommended: Where to Get a Personal Loan

Contractor Financing and Payment Plans

Besides personal loans, another way to pay for a shed is to get financing directly from the contractor. Some contractors have teamed up with third-party lenders to offer customers a loan option to cover the costs of a home improvement project. Like a personal loan, contractor financing is an installment loan, which means you’re responsible for making monthly payments until the balance is paid off.

While it can be an easy way to get a shed loan, interest rates from contractor financing can be more expensive than other options. Plus, you’re stuck with the contractor if things go south with the project.

Comparing Shed Financing Alternatives

If you’re curious about options besides a personal loan or contractor financing, here are some other ways to finance a shed.

Savings

If you’re not in a rush, you can pause on installing a shed. Instead, figure out how much you’ll need and put money into a savings account. To help you make steady progress in your goals, automate your savings, and figure out a target date and amount.

Family Loans

Family loans are something to consider should you have trusted friends or family who might have the means to give you a loan. As you’ll potentially be mixing personal relations with financial matters, take the time at the outset to discuss any concerns. And just like with any other type of loan, go over the terms and come up with a written plan to pay back the money.

Credit Cards

Tapping into an existing card can be an easy way to finance a shed, but it can also be expensive. Credit card interest rates are usually higher than other types of financing, and if you fall behind on payments, you could get hit with late fees.

Home Equity Loan or HELOC

Have you built up some equity in your home? You may want to consider borrowing against it by taking out a home equity loan or a home equity line of credit (HELOC). Both options are often easier to qualify for than unsecured forms of credit, such as a personal loan or a new credit card. However, if you’re unable to keep up with payments, you risk losing your home.

Tips for Securing an Affordable Shed Loan

Remember, the less you pay in interest and fees, the less expensive the total cost of your shed loan. Here are some steps you can take to help you position yourself for better rates and terms.

Build Your Credit

Having a good or excellent credit score can mean lower interest rates and more flexible terms. To build good credit, stay on top of your monthly payments, keep credit usage low and unused credit cards open, and avoid overspending.

Explore Shed Options

Before applying for a personal loan for a shed, poke around and see the options in terms of size, materials, and details like the door, windows, and shelving. Request estimates to get an idea of the type of shed you’d like to build.

Understand How Much You Need to Borrow

Knowing the type of shed you’d like to build helps you narrow the costs involved. Once you have a ballpark figure, borrow only what’s necessary.

Get Preapproved

If possible, get preapproved for loans from different lenders. That way, you can gauge the loan amount and terms you’ll likely qualify for. Lenders typically allow you to get preapproved online, and the process generally requires a soft credit pull, which won’t impact your credit score.

Recommended: Garage Financing: What Are Your Options?

The Takeaway

While building a shed can be expensive, landing on an affordable way to finance the project is doable. Start by doing your homework on different shed options, and use your findings to determine how much you’ll likely need to borrow. From there, start exploring the financing choices available to you and decide what makes the most sense for your finances.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Are there any government programs for shed financing?

Government programs are available, and you might be able to use the proceeds from the loan or grant to finance a shed. However, you’ll need to meet eligibility criteria, which can depend on your income, age, location, type of home improvement project, and whether you belong to certain groups.

How do shed loans compare to other home improvement loans?

Shed loans are the same as other home improvement loans. One main difference is the loan amount. How much you need to borrow depends on several factors, including the shed type, the size, and whether you’re building from scratch or constructing one from a prefabricated kit.

What is the typical repayment period for a shed loan?

Shed loans, which are a type of personal loan, usually have repayment terms of between two and seven years. You’ll want to get a loan term that’s a good fit for your budget and a monthly payment you can afford.

Photo credit: iStock/irina88w

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q424-004

Has this happened to you? You’re thinking about getting a personal loan but haven’t yet applied. Then you get a letter in the mail: “You’re preapproved or prequalified for a personal loan!” What does that mean?

Some lenders use “prequalified” interchangeably with “preapproved,” but they are different. Here, we’ll discuss preapproval vs. prequalification and how to know if you’re a good candidate for a personal loan.

What Does Being Prequalified for a Loan Mean?

Prequalification is sometimes considered the first step in the loan approval process. You can think of it as a less comprehensive version of a preapproval. Prequalification simply means that you fit the general description of a customer typically qualified for a loan.

Based on your general profile, the lender can give you an idea of the size of loan you can qualify for. While prequalification can be done fairly quickly, it does not involve a full analysis of your credit report or verification of the financial information you provide. Because of that, there’s no guarantee that your loan will be approved.

Recommended: What Is a Personal Loan?

What Does Loan Preapproval Mean?

Preapproval is a more in-depth stage of the personal loan approval process. A lender will have accessed your financial history to assess you as a potential customer. Being preapproved means that, based on the information accessed, you most likely will be approved for a loan.

Preapproval allows the lender to show you the size of the loan you might qualify for, and the interest rate and loan terms they’re willing to offer. It’s a step closer to final approval of your loan application. However, this doesn’t automatically translate to being fully approved. For example, a hard credit inquiry can pull in information previously unseen by the lender that was not considered at the preapproval stage.

Does Prequalification or Preapproval Affect Your Credit Score?

Lenders typically prequalify you on the basis of financial information that you provide and perhaps a soft inquiry into your credit history. Soft inquiries don’t affect your credit score, so it’s unlikely that prequalification will either.

Because the prequalification process varies by lender, however, it’s impossible to say for sure that prequalification won’t impact your credit. If it does, the impact will be small and temporary.

Preapprovals are more rigorous than prequalifications and closer to what you’ll experience when you actually apply for a loan. Preapprovals often involve a hard credit inquiry, which does impact your credit. But again, any effect will be minor.

Recommended: Should You Borrow Money During a Recession?

How Do I Know If I’m a Good Candidate for a Personal Loan?

A personal loan application considers your existing debt and your ability to repay the loan. Your current employment will factor into how well-suited you are to repay the loan, as will your credit score. In most cases, this means you need a good credit score to qualify for an unsecured personal loan at a low interest rate.

Lenders will also consider your “DTI” — the ratio of your income to existing debt — and what kind of monthly payments you can afford.

If you can’t otherwise qualify because of a poor credit score, consider asking a close friend or family member to cosign your personal loan. Adding a cosigner with a good credit score to your application can help you get a lower interest rate on your loan.

Will You Prequalify for a SoFi Personal Loan?

Some nontraditional lenders, like SoFi, look at other parts of a financial package when evaluating a candidate’s personal loan application.

SoFi considers additional factors such as your earning potential and cash flow after expenses. This means that even if you have a shorter credit history (because you just graduated college, for example) you may still qualify for a personal loan based on your education and career.

To find out if you qualify for a SoFi personal loan, first go through the online prequalification process. This requires you to create an account, and input your basic personal information, education, and employment history. It takes only a few minutes, after which SoFi will immediately show you which loan options you prequalify for.

After selecting a preliminary personal loan option, you’ll have to finalize your application by uploading documentation to verify your personal information. This may include pay stubs and bank statements. Once you’re approved, the loan is typically disbursed within a week.

The Takeaway

Wondering what it means to be prequalified vs. preapproved? You’re not alone. The terms may sound similar, but there are differences to be aware of.

Prequalification is often the first step of the loan application process, and it typically takes less time and requires fewer details from the borrower. Preapproval is the second step of the process. Here, you can see the size of the loan you could qualify for and the potential terms and interest rate. However, neither step is a guarantee that you’ll be approved for the loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q424-048

Many of us would love to own a vacation home, but the added expense is not always doable. Because we can’t all own multiple properties, vacation timeshares continue to be a popular choice for solo travelers, couples, and families who want more space, amenities, and “a place to call home” at their locale of choice.

We’ll give you an honest rundown of how timeshares work, their pros and cons, and a few financing options.

What Is a Timeshare?

A timeshare is a way for multiple unrelated purchasers to acquire a fractional share of a vacation property, which they take turns using. They share costs, which can make timeshares far cheaper than buying a vacation home of one’s own.

Timeshares are a popular way to vacation. In fact, nearly 10 million U.S. households own at least one timeshare, according to the American Resort Development Association (ARDA). The average price of a timeshare transaction is $23,940. This figure can vary widely depending on the location, size, and quality of the property, the length of stay,

How Do Timeshares Work?

If you’ve ever been lured to a sales presentation by the promise of a free hotel stay, spa treatment, or gift card, it was probably for a vacation timeshare. As long as you sit through the sales pitch, you get your freebie. Some invitees go on to make a purchase. You can also buy a timeshare on the secondary market, taking over from a previous owner.

What you’re getting is access to a property for a set amount of time per year (usually one to two weeks) in a desirable resort location. Timeshares may be located near the beach, ski resorts, or amusement parks. You can trade weeks with other owners and sometimes even try out other properties around the country — or around the world — in a trade.

In addition to the upfront cost of the timeshare, owners pay annual maintenance fees based on the size of the property — about $1,120 on average — whether or not you use your timeshare that year. These fees, which cover the cost of upkeep and cleaning, often increase over time with the cost of living. Timeshare owners may also have to pay service charges, such as fees due at booking.

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Types of Timeshares

There are two broad categories of timeshare ownership: deeded and non-deeded. In addition, you’ll find four types of timeshare use periods: fixed week, floating week, fractional ownership, and points system.

It’s important to understand all of these terms before you commit.

Deeded Timeshare

With a deeded structure, each party owns a piece of the property, which is tied to the amount of time they can spend there. The partial owner receives a deed for the property that tells them when they are allowed to use it. For example, a property that sells timeshares in one-week increments will have 52 deeds, one for each week of the year.

Non-deeded Timeshare

Non-deeded timeshares work on a leasing system, where the developer remains the owner of the property. You can lease a property for a set period during the year, or a floating period that allows you greater flexibility. Your lease expires after a predetermined period.

Fixed-Week

Timeshares offer one of a handful of options for use periods. Fixed-week means you can use the property during the same set week each year.

Floating-Week

Floating-week agreements allow you to choose when you use the property depending on availability.

Fractional Ownership

Most timeshare owners have access to the property for one or two weeks a year. Fractional timeshares are available for five weeks per year or more. In this ownership structure, there are fewer buyers involved, usually six to 12. Each party holds an equal share of the title, and the cost of maintenance and taxes are split.
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Points System

Finally, you may be able to purchase “points” that you can use in different timeshare locations at various times of the year.

Is a Timeshare a Good Investment?

Getting out of a timeshare can be difficult. Selling sometimes involves a financial loss, which means they are not necessarily a good investment. However, if you purchase a timeshare in a place that your family will want to return to for a long time — and can easily get to — you may end up spending less than you would if you were to purchase a vacation home.

Benefits of Timeshare Loans

The timeshare developer will likely offer you financing as part of their sales pitch. The main benefit of a timeshare loan is convenience. And if you’re happy to return to the same vacation spot year after year, you may save money compared to staying in hotels. Plus, for many people, it may be the only way they can afford getting a vacation home.

Drawbacks of Timeshare Loans

Developer financing offers often come with very high interest rates, especially for buyers with lower credit scores: up to 20%. And if you eventually decide to sell, you will probably lose money. That’s because timeshares tend not to gain value over time. Finally, if you’re not careful about running the numbers before you commit, you can end up paying more in annual fees than you expect.

Recommended: What Is Revolving Credit?

Financing a Timeshare

Developer financing is often proposed as the only timeshare financing option, especially if you buy while you’re on vacation. However, with a little advance planning, there are alternative options for financing timeshares. If developer financing is taken as an initial timeshare financing option, some timeshare owners may want to consider timeshare refinance in the future.

Home Equity Loan

If you have equity built up in your primary home, it may be possible for you to obtain a home equity loan from a private lender to purchase a timeshare. Home equity loans are typically used for expenses or investments that will improve the resale value of your primary residence, but they can be used for timeshare financing as well.

Home equity loans are “secured” loans, meaning they use your house as collateral. As a result, lenders will give you a lower interest rate compared to the rate on an unsecured timeshare loan offered at a developer pitch. You can learn more about the differences in our guide to secured vs. unsecured loans.

Additionally, the interest you pay on a home equity loan for a timeshare purchase may be tax-deductible as long as the timeshare meets IRS requirements, in addition to other factors. Before using a home equity loan as timeshare financing, or even to refinance timeshares, be aware of the risk you are taking on. If you fail to pay back your loan, your lender may seize your house to recoup their losses.

Personal Loan

Another option to consider for timeshare financing is obtaining a personal loan from a bank or an online lender. While interest rates for personal loans can be higher than rates for home equity loans, you’ll likely find a loan with a lower rate than those offered by the timeshare sales agent.

Additionally, with an unsecured personal loan as an option for timeshare financing, your primary residence is not at risk in the event of default.

Getting approved for a personal loan is generally a simpler process than qualifying for a home equity loan. Online lenders, in particular, offer competitive rates for personal loans and are streamlining the process as much as possible.

The Takeaway

Timeshares offer one way to secure a place to stay in your favorite vacation destination each year — without having to buy a second home. And timeshares may save you money over time compared to the cost of a high-end hotel. However, beware of timeshare financing offered by developers. Interest rates can be as high as 20%. There are other ways to finance a timeshare that can be more affordable, including home equity loans and personal loans.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Can I rent my timeshare to someone else?

Whether or not you can rent your timeshare out to others will depend on your timeshare agreement. But in many cases, your timeshare resort will allow you to rent out your allotted time at the property.

Can I sell my timeshare?

Your timeshare agreement will give you details about when and how you can sell your timeshare. In most cases, you should be able to sell, but it may be hard to do so, and you may take a financial loss.

Can I transfer ownership of my timeshare or leave it to my heirs?

You can leave ownership of a timeshare to your heirs when you die and even transfer ownership as a gift while you’re living. Once again, refer to your timeshare agreement for rules about what is possible and how to carry out a transfer.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q424-047

Does staring at your outdated stairs make you want to climb the walls? You may be considering a staircase remodel or replacement.

A light staircase remodel could cost less than $1,000, while a total makeover could cost upwards of $6,000, according to the home services site Angi. But the average homeowner spends around $2,054.

How Do You Remodel Stairs?

That’s the million-dollar question, really (and no, that’s not a budget estimate). Staircases are the sum of their parts, and each part is an opportunity to increase visual appeal, the value of your home, and your home equity.

Not surprisingly, there’s no shortage of remodeling options. Cosmetic changes, like painting the vertical spindles, restaining treads or risers, or adding a bold carpet runner, can pack a punch without walloping your budget.

For an entirely new look, you may want to consider changing the bones of the staircase — think replacing handrails, spindles, or treads — or relocating the stairs. Those projects may require finding a contractor. That’s especially the case if you want your staircase to meet current building codes (important for safety and when you’re selling the house).

Understanding the project scope from the outset can help ensure that the staircase remodeling costs make sense. As you’re weighing your options, consider factors like:

•   Budget

•   Space

•   Lifestyle

•   Preferred materials and design

•   Building codes in your area

•   Whether you want to do the project yourself or hire a professional

Recommended: Home Renovation Cost Calculator

Staircase Elements and Materials

Being familiar with basic staircase anatomy and common materials can help you refine project goals and have productive conversations if estimates for the job are required.

The focus here will be on interior stairs.

Treads

The stair tread is the part of the stairway that is stepped on. Treads are often made of wood, although they may have another layer on top, such as tile or carpet.

Risers

Stair risers are the vertical pieces that connect the treads: the piece of the staircase in front of your toes as you’re walking up. Risers might be made of wood or an engineered wood product.

Spindles (aka Balusters)

Spindles, or balusters, provide vertical support for the stair railing. Traditional staircases might have wooden spindles, while a more modern stairway might have metal balusters.

Handrails

Also called a banister, this part is simply the rail where you put your hands. Wood, composite, and metal are all standard, although there is room for creativity.

Newel Posts and Caps

The heftier vertical posts that go in line with the spindles and create endings to the railing are the newel posts, and the cap is the decorative element that tops the newel.

Handrails start and end at the newel posts. Materials mirror those of the spindles.

Guardrails

Guardrails must be installed at open spaces on stairs or landings.

Landing

A landing is a horizontal platform that begins or ends a staircase or serves as a transition between changes in stair direction.

Popular Materials Used in Staircase Renovations

The material you use to renovate a staircase can have a big impact on your budget. Let’s look at four common options:

•   Wood. A popular choice for good reason, wood stairs tend to be easy to clean and maintain, though costs can vary based on the type you use.

•   Metal. Want a sleek, modern-looking staircase? Think metal. It’s durable and fire resistant, though you may need to give it some extra maintenance to prevent rust.

•   Glass. Airy and surprisingly sturdy, glass is another top choice for stairwells, particularly the railings. Clean-up is a breeze — just wipe down the surface. However, the material may be prone to scratches.

•   Concrete. Concrete is easy to maintain and customize and can stand up to lots of foot traffic. But the material can be expensive. According to Angi, wooden steps run around $100 to $200 per step; concrete steps cost $200 to $600 per step.

Estimating the Project Scope and Cost

Before you embark on a stair remodeling project, it’s important to gauge what it will involve and how much it will cost. To do that, consider the changes you’ll be making, the materials you’re planning to use, potential labor costs, and the cost of fees, permits, etc. It’s also smart to make a budget and include a little extra to cover any unforeseen expenses.

These stair makeover ideas will give you a good starting point. Minor upgrades can likely be done yourself. Others will require a licensed professional, who can provide you with a quote.

You may also need to take out a personal loan to finance the job, unless you’re paying cash.

Painting the Stairs

Using paint made to withstand wear and tear is essential for the paint job to last. Look for floor, deck, or heavy-duty paint. Water-based, not oil-based, paints will prevent discoloration, especially on light colors.

Painting stairs requires proper preparation (cleaning and sanding), protecting neighboring surfaces, and possibly priming so the paint will adhere correctly. Count on an average of $400 to paint the stairway, handrails, and balusters.

If this is a DIY job, a gallon of latex paint will average $20 to $60. Polyurethane to help protect the new paint finish might start at $50 per gallon. Sandpaper, paint rollers or brushes, tape, and drop cloths could add up to $80 or so.

A new paint job, perhaps using light and dark colors on different parts of the staircase, will go a long way toward making it more inviting. Painting just the risers a bold hue can add interest, and some people even create a painted runner for their staircase renovation.

Refinishing Stairs

Refinishing stairs is a much more daunting task than painting. This involves stripping the current finish with solvents and sanding, which is easier to do on flat stair treads than turned spindles or vertical risers.

You’ll want to check for lead paint before you start stripping the paint.

You’ll need paint stripper ($70 per gallon and up), a premium heat gun (as low as $45), a power sander and sandpaper ($60 to $100), heavy-duty rubber gloves and a respirator mask ($50), and a scraper (as low as $8) to strip the original finish. Oh, and lots of time and patience.

If you’re getting bids to refinish hardwood stairs, the width and length of every step, along with the rise of each, will factor in. The price to refinish hardwood stairs and railings ranges from $4.50 to $8 per square foot for materials and labor.

Replacing Staircase Components

Swapping elements like spindles, newels, caps, and handrails for a different style can dramatically change the overall look of a staircase.

If the staircase has historic elements, getting spindles or other pieces to match other elements in the home might require custom work if replacements can’t be found through architectural reuse or salvage sources.

Replacing carpet-covered treads with wood treads can rectify an outdated look, but realize that you may have to contend with lots of nails and staples under the carpet. A contractor might charge $2 to $20 per stair to remove the carpet.

The balusters will have to be replaced if you’re replacing the treads.

Here are some average replacement and installation costs, according to HomeAdvisor:

•   Handrail: $900

•   Newel post: $35 to $550

•   Balusters: $1,200 to $1,600

•   Treads and risers: $1,800 to $2,500

•   Carpet runner: $500 to $2,000

Expect to pay from $50 to $100 per hour on labor, and factor in any necessary permits, HomeAdvisor says.

Another source puts the cost of replacing the treads and risers at $3,000 to $4,000, including the work of master carpenters. Yes, you’ll see a range of estimates out there. If you’re getting bids, a lot depends on where you live, your choice of materials, and the size of the project.

Total Replacement

Completely replacing a staircase is logistically and financially complex, but a millennial homebuyer, for example, might want floating stairs with open risers rather than a chunkier look.

Consulting a building or remodeling professional, such as a licensed construction engineer or residential architect, about safety and fire codes and potential structural implications for the home is a good step to take.

The cost to install a main staircase averages $2,400 to $4,000, according to Angi. But the site gives a range of $8,000 to $12,000 or more to put in a floating staircase, so only bids will narrow the true cost of replacing a staircase or installing a new one.

Competent staircase installers may cost as much as the staircase itself.

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The Takeaway

Improving your main staircase can have a major impact on the look, feel, and function of your home. Stair makeover ideas include the fairly simple (think a fresh coat of paint or staining the treads) and the wow-worthy (custom balusters and floating stairs).

Whether you’re sprucing up your existing steps or installing a brand-new staircase, you’ll want to consider your space, budget, lifestyle, and whether you’ll do the work yourself or hire a pro. The cost of a staircase remodel ranges from a few hundred dollars to tens of thousands. Installing a new staircase will typically require several professionals. If a staircase remodel or new staircase install is on your mind, one way to get quick cash is with a personal loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

How much does it cost to redesign a staircase?

An architect and contractor may be required to structurally redesign a staircase. A staircase remodel, if done by the homeowner, could cost less than $1,000.

How do I modernize my stairs?

Consider changing out dated handrails. Paint can take years off.

Add a punch to the risers with eye-catching paint, tile, or even wallpaper. Consider a bold-colored or -patterned stair runner that allows the stair treads to be exposed at the edges.

A dramatic light fixture at the top of the stairway will offer both illumination and arty interest. And stair cladding — covering the treads and risers with wooden floor planks — will create a big transformation.

How do you renovate stairs on a budget?

Making less expensive changes, like adding a coat of fresh paint, replacing spindles, or adding a runner, can completely change the feel of a staircase — and the living space that surrounds it, making a house feel like a home.

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