Should You Get a Secured or Unsecured Home Improvement Loan?

Improving your home can be a costly endeavor. Whether you’re painting a hallway or adding a room then you may need to borrow some money to get the job done right and in a timely and professional manner. The two different types of home improvement loans available are known 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 income level. You don’t have to have any equity in order to borrow money with an unsecured loan. Most hardware store credit cards are essentially unsecured loans. Unsecured home improvement loans can obviously be used if you have no equity in your house.

One of the most common types of unsecured loans for home improvements is a credit card. Credit cards can be offered by a hardware store, but they can also be offered by a number of different lending institutions. Almost any credit card can be used for a small home improvement project and the loan is almost always unsecured because no property of value 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.

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 car 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 smaller interest rate because they are safer for financial lenders to give out due to the collateral involved. You may even be able to deduct the house improvement loan interest from your yearly income taxes!

Both secured and unsecured home improvement loans have a purpose and can really help you upgrade your home if you don’t have the money needed readily available. Be sure to do your homework and make sure you can actually repay 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.