Advance America: How to Choose the Right Home Improvement Loan

Making home improvements can potentially increase a home's value. This offers the homeowner more equity they can tap for a home equity loan or line of credit. Plus, it allows them to command a higher selling price if they decide to sell their home.

Home improvement projects can be a significant financial undertaking. But with the help of a home improvement loan, homeowners can get the funding they need to kick off this project. To complete their renovations while maintaining solid financial footing, homeowners should carefully consider the following four criteria when choosing a home improvement loan.

1. Loan amount

Borrowing too little can leave the homeowner unable to cover the rest of the cost, leaving the project unfinished. On the other hand, too large of a loan can burden the homeowner with higher monthly payments and more interest. So, homeowners should know approximately how much their home improvement project will cost. This will help them determine the loan amount they need to borrow to pay for the project.

2. Repayment terms

The repayment term measures how long the homeowner has to pay back the loan. Shorter-term loans tend to have lower rates, which could save the homeowner a significant sum on interest payments. But this also means that the homeowner will have to make much larger monthly payments to pay off the loan on the shorter deadline. Homeowners that want to minimize the money they lose on interest should get a loan with a shorter term.

On the other hand, a long-term loan offers the homeowner much more time over which to spread the loan balance. Monthly payments are much lower, but keep in mind that they may end up paying more money in interest. 

3. APR

Annual Percentage Rate, or APR, measures the yearly interest rate for a loan. The APR is essentially the cost of borrowing money — the higher the rate, the more the borrower pays to take out the loan. Borrowers should shop around to get the lowest possible rate. But it's important to remember that other factors can impact APR, so borrowers should weigh a loan's features against its APR to find the right option for their situation.

4. Secured vs. unsecured

Secured loans require the borrower to put down an item as collateral. The lender can seize this collateral to cover their losses if the borrower fails to pay. Secured loans tend to have lower requirements, come with lower interest rates, and offer larger amounts, at the risk of the borrower losing an item they value.

On the other hand, unsecured loans don't require collateral. The borrower doesn't have to risk one of their possessions. But since unsecured loans are riskier for the lender, they can sometimes have more stringent requirements and offer lower amounts and higher rates. Borrowers should determine if they have an item they're willing to risk giving up when deciding whether they want a secured or unsecured home improvement loan.

The bottom line

Completing a home improvement project without breaking the bank is possible if the homeowner gets a good home improvement loan. To find the right loan, homeowners first need to know their budget. From there, they should decide what term length they want and whether they want to use collateral. Finally, they should shop around to get the lowest possible APR without compromising on those factors. As long as homeowners do their research and compare options, they should be able to get a loan that allows them to improve their homes within their budgets.

Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.


Source: Advance America

About Advance America

Founded in 1997, Advance America, the country's leading state-licensed consumer lender, seeks to help every customer achieve their version of financial stability through a variety of innovative, regulated and transparent small-dollar credit options.

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