I want to check my prequalified APR for Small Loans ($100-$1000) Installment Loans ($100-$5000) available in the state of United States.

I confirm that I am over 18 years old, I am not an active-duty military member, and I have verifiable income.

START HERE

*Applying does not affect your FICO® score.

TCALoans.com » Learning Center » Home Economics » How to Pay for Home Improvement Projects

How to Pay for Home Improvement Projects

Whether it’s a large project like a room addition or a minor project like a paint touch-up, home improvement projects make your home a more enjoyable place to be, as well as add to its value. One question you may have is how to pay for home improvement projects.

How to pay for home improvement projects

When looking for ways to finance home improvement projects, there are a variety of options to consider:

  • Home Improvement Loans
  • Credit Cards
  • Cash
  • Home Equity Line of Credit (HELOC)
  • Home Equity Loans

Home Improvement Loans

Home improvement loans are personal loans that are used to finance home improvement projects.

The pros of home improvement loans include:

  • Easier to be approved for compared to equity loans and home equity lines of credit (HELOC)
  • Does not require equity in the home to get the loan
  • Does not require collateral, so your property isn’t at risk if you’re unable to repay the loan

The cons of home improvement loans include:

  • Generally, these loans have higher interest rates than home equity loans or home equity lines of credit (HELOC)
  • May charge an origination fee; there may also be fees for paying off the loan early
  • Typically, repayment terms are shorter, which can make paying off a large loan more difficult
  • Interest on the loan isn’t tax-deductible

Credit Cards

Credit cards with a 0% introductory APR or rewards benefits may be a good option if you’re financing a smaller home improvement project.

The benefits of using a credit card to finance your home improvement project include:

  • Easily accessible, especially if your credit is good to excellent
  • 0% introductory APR cards allow you to avoid interest as long as the balance is paid before the introductory period expires
  • Rewards cards allow you to earn points, rewards, or cash-back for your spending

The cons of using a credit card to finance your home improvement project include:

  • Your credit limit might not be high enough to finance higher-cost home improvement projects
  • Your credit utilization ratio can increase, harming your credit score
  • You’ll be charged interest if your balance isn’t paid before due
  • Interest rates can be higher than other options

Cash

Paying for your home improvement project with cash can be a good option if you can afford it.

The benefits of using cash include:

  • No payments due
  • Avoids interest charges and fees
  • Contractors may offer a discount if paid in cash, decreasing the cost of your home improvement project

The cons of using cash include:

  • Emptying your savings or emergency fund could put you at risk if you encounter a financial emergency
  • Your home improvement project may be more expensive than what you can afford to pay in cash

Home Equity Lines of Credit (HELOCs)

HELOCs (Home Equity Lines of Credit) are lines of credit that use your home as collateral.

The pros of using HELOCs:

  • Interest rates are generally lower than other options because HELOCs are secured by home equity
  • HELOC interest may be tax-deductible
  • A HELOC can be used for purposes other than just home improvement projects

The cons of using HELOCs:

  • Interest rates can be variable, meaning they could potentially increase
  • HELOCs may charge origination fees, home appraisal fees, and administrative fees
  • If your home value decreases, you could owe more than your home’s worth
  • If unable to repay the loan, you’re at risk of losing your home
  • HELOCs typically require good to excellent credit

Home Equity Loans

Sometimes called second mortgages, home equity loans are loans that require your home’s equity as collateral.

The benefits of home equity loans include:

  • Dependent on your home equity, you may have the ability to borrow a more significant amount
  • Interest rates are often lower than those of credit cards, home improvement loans, and HELOCs
  • Interest rates are fixed
  • Interest paid on the loan may be tax-deductible
  • Often these loans have more extended repayment periods, meaning it may be easier to pay back larger loans

The cons of home equity loans include:

  • You may pay closing costs (usually 2%-5% of the loan amount)
  • You may also pay fees for your home appraisal
  • Your equity will decrease, meaning you’ll be paying off your mortgage for longer
  • A significant decrease in the value of your home could leave you owing more than your home’s worth
  • If you find yourself unable to repay the loan, you could lose your home
  • These loans require good to excellent credit

What to consider before starting your home improvement project

Before deciding how to finance your home improvement project, assess your budget and determine what you can afford to spend. You should also examine your credit report and consider your credit score to help determine what financing options you have available.