The Best Type of Loan for Home Improvements
Improving your house can be a costly endeavor. Whether you’re replacing some light fixtures or refinishing a basement then you may need to borrow some money to get the job done right and in a timely and professional manner. The two different types of house improvement financing available are known as “secured” and “unsecured” loans.
An unsecured loan is a loan which is not “secured” against any property of value and isn’t held up with any sort of collateral. Most lending institutions will give an unsecured loan for home improvements based on a person’s credit score. A hardware store credit card is actually an unsecured loan. You often get an unsecured loan if you have a steady job. You can even get an unsecured home improvement loan if you have zero home equity.
One of the most common types of unsecured loans for house improvements is the credit card. Credit cards can be offered by a home improvement store, but they can also be offered by a number of different banks. Almost any credit card can be used for a small home improvement project and the loan is almost always unsecured because no property of value needs to be put up to secure the loan. Unsecured loans are usually small and can be paid off in a short period of time.
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 car 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 house improvement loans often have more paperwork but they also usually offer a smaller interest rate because they are safer for lending companies 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!
No matter what type of house improvement financing you consider remember that you do have to pay the money back and you will be paying interest on the money owed. Plan ahead and make sure you can really afford the regular payments before you apply for your loan. Many house improvement plans are changed when people finally begin to understand how home improvement financing work.
Want to learn more? You may qualify for a home improvement loan even if you have poor credit or no home equity.
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