Not using the property as collateral implies closing a door for financing and thus, restricts your ability to get the funds you need for making home improvements. However, it is still possible to get funding for home improvements through unsecured loans. Though unsecured loans are not strictly meant for home improvements, nothing prevents using them for such purpose. However, the unsecured nature of these loans has several implications that must be taken into account at the time of considering them as an option for financing your home improvement project.
Advantages of Unsecured Loans
Unsecured loans when used for home improvement have some advantages over secured loans. When it comes to approval, there are no special requirements as to the use you’ll give to the money and thus, it won’t matter if you use the money for home improvements or other purposes as well. With secured loans, there are special secured loans for home improvements and that’s the only specific use that the money can have.
Also, there is no risk of repossession associated with unsecured loans. Thus, if you fail to meet the monthly payments, your property doesn’t run an immediate risk of foreclosure. Yet, this doesn’t mean that the lender can’t take legal action to recover his money, it’s just that he can’t attack the property directly. Nevertheless, it’s best not to miss payments or pay late.
As regards to loan amount, there are also not so many limitations as one may think. You can actually get a fair amount out of unsecured loans. Sometimes even more money than you could have obtained from the outstanding equity on your home. Personal unsecured loans’ amounts range from a couple of hundreds to tens of thousands.
The Interest Rate Issue
The interest rate usually is the main drawback of unsecured loans. The high interest rate charged for unsecured loans is mainly due to the lack of collateral which increases the risk for the lender. However, given that you are using the money for home improvements, this implies that you are actually a home owner, and homeownership has benefits.
Home owners tend to get better rates on unsecured loans and that’s why these loans are so popular not only among tenants but also among homeowners who prefer not to risk their property. Homeowners get lower interest rates because even if the property is not used as collateral, it still belongs to the applicant’s assets which one way or another guarantee the loan repayment.
Thus, although home equity loans used for home improvements provide a cheaper source of finance, unsecured personal loans are also a good alternative if you don’t like using your property as collateral of the loan. The interest rate charged for unsecured personal loans may be a couple of points higher only and being a homeowner will reduce this difference even more so you won’t really have to worry about overpaying for financing your home improvements project.
Sarah Dinkins is an Expert Loan Consultant at Badcreditfinancialexperts.com where she helps people to repair their credit and to get approved for home loans, unsecured personal loans, student loans, car loans and other types of loans and financial products. In her website you can find more finance articles.