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.

Unsecured loans are loans which are given to you based on your credit rating and not based on any single thing 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 loan. You generally don’t have to have equity to get an unsecured home improvement loan.

Unsecured loans are good for smaller home improvement loans which you can pay off quickly. Hardware store credit cards are good to use for small house improvement projects that are under $1,500 because the application process is usually fairly simple. Some home improvement store credit cards even offer 0% interest rate or discounts on merchandise for a fixed period of time.

Secure loans are loans in which the bank 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 house improvement loans often have more paperwork but they also usually offer a lower interest rate because they are more safe for banks to give out due to the collateral involved. You may even be able to deduct the home improvement loan interest amount from your yearly taxes!

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

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