Differences Between Unsecured and Secured Home Improvement Loans

When you start researching home improvement financing you’ll quickly learn that there are different ways to borrow money for house improvements. The two general types of loans are often categorized as “secured” and “unsecured” loans.

When you borrow money with an unsecured loan, you are not offering anything up for collateral. An unsecured loan is given based on your past credit rating and your current salary level. You don’t have to have any built up home value in order to borrow money with an unsecured loan. Most home improvement store credit cards are essentially unsecured loans. Unsecured house improvement loans can almost always be used if you have zero equity in your home.

Home improvement store credit cards are good to use for small house improvement projects that are under $1,500 because the application process is usually fairly easy. 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 a few months.

Most people pay for major house improvement projects with a secured loan. Secured loans require you to put up collateral to be sure you pay back the loan. This collateral is usually the added value that’s built up in your house over the years since you purchased it. If you don’t pay back a secured loan then you may actually lose your home to the lending company.

Secured home improvement loans often have more paperwork but they also usually offer a smaller interest rate because they are safer for banks to give out due to the collateral involved. You may even be able to deduct the house improvement loan interest from your yearly 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 monthly payments before you apply for your loan. Many home improvement plans are changed when people finally begin to consider how house improvement financing work.

Want to discover more about how you can pay for that home upgrade? Be sure to read about some more home improvement loan options that you may qualify for.

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