Renovating? What You Should Know About Unsecured Loans
If you’re getting ready to sell your home or one that you’re flipping, you’ll probably want to set up a budget to renovate it to make it look nicer before it sells. Professionals estimate that in 2019, it costs up to $19,000 to remodel a 1,000-square-foot space, and it can cost upwards of $36,000 to remodel a 4,000-square-foot space. If you do not have those funds readily available, you can apply for a loan to cover the costs, including an unsecured loan. A mortgage is secured by your home, and a car loan is secured by your vehicle, but an unsecured loan does not require any form of collateral. Here are three things you should know about unsecured loans.
No Collateral Doesn't Mean No Recourse
When you take out any kind of loan, you are responsible for the repayment of the funds. If you do not pay back the loan, you are technically stealing. If someone stops paying his or her mortgage, the bank will foreclose on his or her home in order to recoup any losses. Just because an unsecured loan has no collateral attached does not mean the lending institution has no recourse. First, failure to repay negatively impacts your credit score. Secondly, the institution can take legal action by sending the account to collections.
Credit Determines Loan Quality
Even though the lending institution will not require you to put collateral up front, it will have other requirements. The institution will determine the level of risk it would take by lending you the funds you are requesting. Lower interest rates on unsecured loans require good credit scores. Personal loans are available from banks, credit unions, and online lenders, and they can be used for any purpose. If you are seeking better loan terms, work to improve your credit score by starting small and making payments on time.
Unsecured Loans vs. Secured Loans
While secured loans have a tendency to be higher in amounts lent, for a remodel, an unsecured loan is best. You will not be asked how you are going to spend the funds. Instead, you will simply be told when your payment is due as well as the terms. Secured loans can only be used for specific purposes. One of the largest secured loans given out, for example, is a mortgage. As a secured loan, a mortgage can only be used to purchase a home.
For a remodel, an unsecured loan may be the best option for you. It does not require collateral, but your credit score will determine the terms and amount lent to you.
Once you’ve renovated your home and you are ready to sell, let me help! Contact me today!