Unsecured versus Secured Loans for Home Improvements

There are many different ways to borrow money 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.

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 equity in order to borrow money with an unsecured loan. Most home improvement store credit cards are essentially unsecured loans. Unsecured home improvement loans can almost always be used if you have no equity in your home.

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 banks. 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 house 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 actually 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 companies to give out due to the collateral involved. You may even be able to deduct the home improvement financing interest amount from your yearly taxes!

Whichever type of home improvement loan you consider remember that you do have to pay the money back and you will be paying interest on the money owed. Be sure to thoroughly research all your loan options. Many home improvement plans are revised when people finally begin to consider how house improvement loans work.

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