1.) Home Equity Loan
A home equity loan is a loan that’s secured by your home’s value. Home equity loans allow you to borrow a fixed amount of cash, which you receive in one lump sum. Most home equity loans have a fixed interest rate, a fixed term and a fixed monthly payment.
- Taking out a home equity loan can mean paying several fees.
- Receiving all the funds in one shot can push you into spending more than you actually should.
- You may find that the amount you borrowed is not enough.
2.) Credit cards
You may already have your credit cards open and won’t need to apply for a new loan, so you may be thinking, why not use this available credit to fund my renovations?
If you’re only doing some minor touch-ups on your home and you can afford to repay the charge within the next year or two, a credit card could work.
For bigger projects, though, funding them through your credit cards can have devastating effects on your financial health.
- You may be stuck paying interest of 15% or more until you pay off the balance on your card. This means your remodeling project will cost you a lot more than necessary.
- Your credit score will likely be negatively affected by the large, unpaid balance on your card by pushing your balance to total available credit ratio well above 30%.
- You might send yourself spinning into a cycle of debt once you already owe so much money on your card.
3.) Personal loans
Personal loans are short-term loans that may or may not be secured by some form of collateral (like a car or other titled good). They typically need to be repaid within 24-60 months.
- Upfront costs and interest rates on personal loans can be relatively high.
- Like a home equity loan, you’ll receive all the money you borrow in one lump sum. This can compel you to spend it all, even if you don’t need to do so.
4.) Retail credit cards
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