October 27, 2009
Differences Between Unsecured and Secured Home Improvement Loans
There are many different ways to borrow money for a home improvement project, but essentially your options come down to a “secured” or “unsecured” loan. 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 rating. A hardware store credit card is really an unsecured loan. You often get an unsecured loan if you have a steady income. You can even get an unsecured house improvement loan when you have zero home equity.
One of the most common types of unsecured loans for home improvements is a credit card. Credit cards can be offered by a home improvement 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 collateral 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.
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 added value that’s built up in your house as collateral. If you don’t pay back the loan then you may actually lose your house to the bank.
Secured house 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 income tax returns.
Both secured and unsecured house improvement loans have a purpose and can really help you fix up 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 learn more? You may be able to get a home improvement loan even if you have poor credit or no home equity.
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