When you start researching home improvement financing you’ll quickly learn that there are different ways to borrow money for home improvements. The two general types of loans are often categorized as “secured” and “unsecured” loans.
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 home improvements based on a person’s credit score. A hardware store credit card is really an unsecured loan. You often get an unsecured loan if you have a steady job. You can even get an unsecured house improvement loan if you have no home equity.
Home improvement store credit cards are excellent to use for minor house improvement projects that are under $1,000 because the application process is usually honestly small. 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 six months.
If you get a loan that is “secure” then the bank technically owns what you’re buying until you pay them back. For a home improvement loan you are typically using the equity that’s built up in your home as collateral. If you don’t pay back the loan then you may really lose your house to the lending company.
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. 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 home improvement loan from your income 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 cash needed readily available. Be sure to do your homework and make sure you can really repay the loan on time.