Secured Home Improvement Loans: are They Better?

By: Melissa Kellett

Given that the loan industry offers both secured and unsecured home improvement loans, you probably wonder whether secured loans are really better than unsecured home improvement loans. You know that the interest rate charged tends to be lower, but that's about it? Or are there any other benefits you should take into account when deciding which type of loan to apply for?

Meant for making all kind of home improvements, this kind of loans are mainly tailored for homeowners. Whether the homeowner wishes to or can use his property as collateral or not does not matter. The property is still part of the borrower's assets and in some way guarantees the repayment of the loan even if the loan is unsecured.

Main Differences

The Classic differences between secured personal loans and unsecured personal loans also apply to secured and unsecured home improvement loans. The interest rate charged for secured home improvement loans is considerably lower due to the loan being guaranteed with an asset. Nevertheless, if the applicant is a homeowner with a good credit score and a clean credit history, the difference between the two rates fades away.

The loan amount you can request also depends on whether the home improvement loan is secured or unsecured. Secured home improvement loans are offered with higher loan amounts and you can usually request up to the remaining of the available home equity. However, if the applicant has sufficient assets, an unsecured home improvement loan could be awarded for even more money than a secured one.

The same goes to the loan schedule, there is a lot of flexibility when applying for secured home improvement loans and long repayment programs can be agreed. Unsecured ones do not allow such long repayment programs that can sometimes reach 15 years or more. Nevertheless, all depends on the applicant's financial and credit situation.

The risk of repossession is not present on unsecured loans but the lender can still take legal action to recover his money as with any other type of loan. The only difference being that such actions would take a lot longer and would probably be far more expensive in terms of legal fees.

Specific Differences

Secured Home Improvement Loans are awarded for a specific purpose. Any proved use that does not look like the original purpose can be cause for penalizations. Unsecured Home Improvement Loans, on the other side are nothing but personal unsecured loans. Thus, even though they may be promoted as home improvement loans, the use you actually give to the money does not concern the lender at all.

Also, since secured home improvement loans have that special purpose requirement, the lender may request you to provide documentation stating which improvements are going to be undertaken and will probably be more likely to approve those loans for home improvements that will raise the property's value, thus increasing the equity on your home. This is due to the fact that any increase on the property's value is an increase on the value of the asset guaranteeing the loan which benefits both the applicant and the lender.

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