4 Reasons to Avoid Personal Loans and Home Improvement Credit
NEW YORK, June 21, 2022 (GLOBE NEWSWIRE) — It can get expensive when it comes to homeownership, especially when it comes to updates and renovations. It’s often tempting to put the cost of those home updates on a credit card or even take out a personal loan to have a lump sum to spend on those repairs and renovations.
Although credit and personal loans may seem attractive, it is worth considering more competitive options available for home renovations.
1. High interest rates
While using credit cards and personal loans is an attractive way to pay off expensive projects over time, one of the main things to watch out for is that credit card’s interest rate. or this personal loan. When looking at credit card interest rates, the average is between 18% and 23%, and personal loan rates can vary between 5% and 25%, depending on the amount withdrawn.
Meanwhile, the average interest rate for a home equity line of credit (HELOC) typically ranges between 2% and 7%. Using a HELOC to pay for home updates saves a significant amount of money on interest compared to other forms of credit or a loan.
2. Shorter repayment period
When a person gets a credit card or takes out a personal loan, repayment begins within 30-60 days of opening that account and requires regular monthly payments on the amount spent. If you use a HELOC or home equity loan, repayment starts later and can be made over a longer period.
Many HELOCs have two distinct periods – a withdrawal period and a repayment period. For many HELOC lenders, the withdrawal period can be up to 10 years, where borrowers can withdraw as needed from their available line of credit. Many lenders also allow borrowers to only pay interest during the withdrawal period on what they borrow, which keeps monthly payments low. This unique ability of a HELOC makes it particularly attractive to potential home sellers, as they can benefit from low payments until they sell their home to pay off the HELOC in full.
3. Borrowing authority
When comparing the amount a person can borrow with a personal loan or the credit limits offered by a credit card, the borrowing power is often significantly lower than the amount one can borrow through a personal loan. home equity financing, such as a HELOC or a home equity loan.
Because a HELOC or home equity loan uses a home as collateral, lenders can provide secured loans with borrowing limits dictated by available home equity. Since home equity is the difference between a home’s resale value and what’s owed on the mortgage, HELOC borrowing limits can often match expensive home improvement bills.
4. Tax deductions
Using home equity financing for home renovations or updates has a unique advantage that personal loans or credit cards do not have. Tax deductions.
With a home equity loan or HELOC, using funds specifically for home updates may qualify for tax deductions for any interest paid on the loan.
Performing updates and renovations on a home can be important not only to the functionality and style of that home, but can also help increase the value of the home. While credit cards or personal loans may seem like easier or faster ways to pay for home updates, using home equity financing like a HELOC will help borrowers secure lower rates. lower interest, higher borrowing limits and potential tax deductions, where many HELOC applications can be fulfilled. in minutes and payment can begin in weeks. Consult a tax professional regarding potential interest deductibility.
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