You can choose between two broad types of renovation payment options: uncollateralized and collateralized. The charts and article below explain the pros and cons of each:
Uncollateralized payment options don’t risk your home equity or require long applications.
- Personal loans often have lower payments than other uncollateralized options. With terms of 3-5 years, you can pay off your loan quickly and maybe even pay less in total than you would through a loan with a longer term.
Personal loans are usually “lump sum” with fixed rates. That means you get your money upfront, and the amount you owe each month doesn’t change. Hearth finds you personal loan offers from multiple lenders at once.
- Credit cards can offer promotions such as 0% rates for 12 months on small rates. If you have a good credit score and your project is small, then a same-as-cash credit card may be a viable option. However, beyond a year, rates can soar above those on personal loans. And if you aren’t careful, credit card debt grows quickly.
Collateralized loans risk your home equity and require lengthy application processes. This risk allows lenders to offer you lower rates than those on uncollateralized loans. Because collateral is involved, these loans also take longer to approve. Collateralized loans are usually used for larger projects over $100,000. The two most popular collateralized home improvement loans are:
- Home equity lines of credit (HELOC) let you borrow as needed against your home’s equity up to a predetermined limit. Interest rates are usually adjustable.
- Home equity loans give you a lump sum of money at a fixed interest rate. Like HELOCs, terms are often as long as 30 years.
Here are the pros and cons of each payment option: