The Best Type of Financing for Home Improvements
There are many different ways to borrow cash for a home improvement project, but essentially your options come down to a “secured” or “unsecured” financing vehicle. These two types of loans have advantages and disadvantages.
An unsecured loan is a loan which is not “secured” against any object of value and isn’t held up with any sort of collateral. Most banks will give an unsecured loan for home improvements based on a person’s credit score. A home improvement store credit card is really an unsecured loan. You almost always get an unsecured loan if you have a steady job. You can even get an unsecured home improvement loan if you have almost no home equity.
Unsecured loans are good for small house improvement loans which you can pay off quickly. Home improvement store credit cards are good to use for small home improvement projects that are under $1,000 because the application process is usually fairly short. Some hardware store credit cards even offer zero percent interest rate or discounts on products for a certain period of time.
Secure loans are loans in which the lending institution has some sort of collateral or item which they technically “own” until you pay it off. When you finance a boat or buy a house with a mortgage the bank technically owns what you bought until you’ve paid off the debt amount with interest. With a secured home improvement loan your house is the collateral. If you default on your loan then the bank can take your house or car and sell it in an effort to regain some of the money they lent you.
Secured home improvement loans often have more paperwork but they also usually offer a lower interest rate because they are more safe for lending companies to give out due to the collateral involved. You may even be able to deduct the house improvement loan interest amount from your income taxes!
Both secured and unsecured home improvement loans have a purpose and can really help you fix up your home if you don’t have the money needed readily available. Be sure to do your homework and make sure you can actually pay back the loan on time.
