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Unsecured vs Secured Loans 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. Many lending institutions will give an unsecured loan for house improvements based on a person’s credit score. A home improvement store credit card is essentially an unsecured loan. You often get an unsecured loan if you have a steady income. You can even get an unsecured house improvement loan if you have no home equity.
One of the most common types of unsecured loans for home improvements is the credit card. Credit cards can be offered by a hardware store, but they can also be offered by a number of different lending institutions. Almost any credit card can be used for a small house 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 motorcycle 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 such as home equity loans generally have a lower interest rate, which makes paying them off easier over the long run. There is often more paperwork and a longer delay associated with secured loans because they are so much larger than most unsecured loans. Depending on your tax situation you may even be able to deduct the interest you pay on your house improvement loan from your yearly tax returns.
Both secured and unsecured home improvement loans have a purpose and can really help you upgrade 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.
Want to discover more about how you can pay for that home improvement? Be sure to read about some more home improvement loan programs that are available.
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