Have you been postponing your land-standing wish for home improvement due to a fund crunch? Or are you still figuring out whether to fund it with home equity or a personal loan online?
Several financial institutions offer home equity loans to homeowners and, at the same time, provide personal loans that homeowners prefer to renovate their homes without any strings attached.
Be it bathroom renovation, kitchen remodeling, balcony expansion, or another home repair or upgrade project, home improvement can change the look & feel of your home, inside and outside your premises.
This article will touch upon the specialties, plusses, and minuses of both options (personal and home equity loans) to help you decide the best one for your home improvement. Here we go.
What are Personal Loans?
Personal loans are collateral-free loans that one may avail of without a valuable asset for security. Besides, these loans do not have end-use restrictions. So, borrowers can use them for any purpose. For instance, when they take an instant personal loan online for home renovation, they can use it to cover all the related expenses, including labor, material, contractors, designers, etc.
The repayment terms are flexible, which the borrowers may choose according to their repayment capacity. The lenders decide the loan amount and interest rate based on the applicant’s income, debt-to-income ratio, credit score, and other crucial factors.
What are Home Equity Loans?
Home equity loans are secured loans that use the equity built-up in a property as collateral. One may calculate the home equity built-up by subtracting the outstanding mortgage balance from the property’s current market price. One may borrow up to 85% of their home equity and repay it over a more extended repayment period than personal loans.
When to Take a Personal Loan?
A personal loan is better for borrowers who need a smaller loan amount and want a more effortless loan application procedure. Those with excellent credit scores may also apply for personal loans online at lower interest rates. Moreover, those who do not have equity in their home are ineligible for a home equity loan, making a personal loan the only choice left.
When to Take a Home Equity Loan?
Individuals with a low credit rating may not qualify for a low-interest rate personal loan, making a home equity loan a better choice. Those with enough home equity may use their home as collateral and get a lower-interest home equity loan than a personal loan. When borrowers use the loan amount for home repairs or renovation projects, they may deduct the interest paid on a home equity loan from the taxes. Such tax benefits are not available with personal loans.
Making the Final Choice Between Home Equity and Personal Loans Online
No single loan is best for every situation. The loan type one must prefer depends on their financial situation, home equity, credit score, and several other factors. The risk factor is another crucial parameter when deciding between the two loan types. A personal loan is unsecured, so the borrowers do not lose their assets if they fail to repay it. However, they put their property at stake with a home equity loan. If loan repayment fails, they stand the risk of losing their asset.
That’s about the pros and cons of home equity loans and personal loans online. You can now better evaluate and decide the most suitable one for your needs. Many lenders offer both these loans with minimum documentation and competitive interest rates. So, go ahead and make a wise decision.