Differences Between Unsecured and Secured Home Improvement Loans
When you start researching house 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.
Unsecured loans are loans which are given to you based on your credit rating and not based on any single possession you offer up for collateral. Your credit rating is really a measure of your historical ability to pay off what you’ve owed in the past. If you’ve always paid your bills on time then you probably have a pretty good credit rating. A credit card, even a credit card from a hardware store, is usually considered an unsecured type of financing. You generally don’t have to have equity to get an unsecured house improvement loan.
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 house improvement projects that are under $1,000 because the application process is usually fairly short. Some home improvement store credit cards even offer 0% interest rate or discounts on merchandise 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 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 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 financing interest from your yearly income taxes!
No matter what type of home 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 monthly payments before you go forward with your loan. Many home improvement plans are revised when people finally begin to understand how home improvement loans work.
Want to discover more about how you can pay for that home improvement? Be sure to read about some more home improvement loan options that you may qualify for.
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