There are many different ways to borrow money 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.
When you borrow money with an unsecured loan, you are not offering anything up for collateral. An unsecured loan is given based on your past credit rating and your current salary level. You don’t have to have any equity in order to borrow money with an unsecured loan. Most home improvement store credit cards are essentially unsecured loans. Unsecured home improvement loans can usually be used if you have no equity in your home.
Hardware store credit cards are good to use for small house improvement projects that are under $2,000 because the application process is usually fairly short. These credit cards are the most common types of unsecured loans for house improvements. You can sometimes qualify for a zero percent interest rate on some cards for a few months. If you do not want to use a hardware store credit card then you can attempt to borrow cash from an unsecured loan company.
Secure loans are loans in which the bank 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 home loan the bank technically owns what you bought until you’ve paid off the debt amount with interest. With a secured house 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 house improvement loans often have more paperwork but they also usually offer a lower interest rate because they are safer for lending institutions to give out due to the collateral involved. You may even be able to deduct the home improvement loan interest amount from your income taxes!
Both secured and unsecured house improvement loans have a purpose and can really help you upgrade your house if you don’t have the cash needed readily available. Be sure to do your homework and make sure you can actually repay the loan on time.
Need to learn more about how you can pay for that home remodeling project? You might Need to also read about refinancing a home loan to decide if now is the absolute best time for you to take money out of your home.
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