When you start researching home improvement financing you’ll quickly learn that there are different ways to borrow money for home 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 income 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 home improvement loans can obviously be used if you have zero equity in your home.

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

Most people pay for major home 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 default on a secured loan then you may actually lose your house to the bank.

Secured house improvement loans such as home equity lines of credit 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 upgrade your house 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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