Institutions from all over the world offer home remodeling loans. In Norway, they’re called lån til oppussing, in Spanish, it’s called “préstamo de remodelación del Hogar,” but even though we have many different names for it, home remodeling loans are all pretty similar. 

Like everywhere else, home improvement loans are very helpful for emergency fixes, and significant repairs the at can’t wait. Other home improvement projects can only be accomplished during certain times of the year. Even if the homeowner’s budget is not enough, the home remodeling project can still commence with a home improvement loan.

There are those who may argue that saving up money for a home remodeling project is the cheapest way to accomplish it. Technically, this may be true, as you obviously won’t be paying the cost of the loan, which may include interest, fees, and other charges. However, home improvement loans may be cheaper in some cases. Imagine that your plumbing system sprung a leak, and water started seeping through walls and floors. The cost of fixing the pipe immediately will be significantly cheaper than having to repair a larger area due to water damage, rot, and mold because you waited too long before fixing the problem.

There are also alternatives to a home improvement loan for a remodeling project. The following discusses conventional home improvement loans as well as other types of loans for home remodeling projects


1. Consumer Credit

While you may find that this discussion does not start with a conventional home improvement loan, allow us to explain why. Because a good portion of home repairs and fixes need to be done quickly, such as in the case of a busted pipe or a hole in the roof, you’ll need a budget for it as soon as possible. Whether you are applying the fix yourself or are calling in the pros, consumer credit is a good option for the very reason that you may already have one.

Consumer credit is primarily associated with credit cards, and they are the most common form of credit purchases for goods and services. If you don’t have enough cash to purchase a new fixture or a replacement part, and you have the right credit card at your disposal, you can swipe, insert, or tap it. Credit cards can be a lifesaver for urgent purchases. For instance, if you have a busted pipe, it would be highly inconvenient and impractical to turn off the main shut off the water supply valve and stop service to the entire home when you pay for it on credit.

With consumer credit, such as with credit cards, you can get the parts or service that you need immediately. Ideally, consumer credit should only be used for emergency home repairs where the costs of the needed materials and/or services are relatively lower than the price required for a significant home remodeling project. On the flip side, it is impractical to use consumer credit to fund a substantial home remodeling project as the cost of the credit can shoot up way more than it would with a home improvement loan.


2. Personal Line of Credit

A personal line of credit is similar to consumer credit in that the loan can use funds along a line of credit whenever the borrower needs it. One of the main differences between the two is that personal lines of credit usually come secured. Personal lines of credit also have lower credit costs but come with higher credit limits as they are secured with collateral. Lines of credit always deal in cash. In a sense, it is a better option than credit cards because, apart from having lower interest rates, it also does not charge annual percentage rates and fees. Personal lines of credit doe have the same disadvantage as credit cards since cash is within easy access. Some borrowers may be tempted to draw more cash than they need.

Personal loans are even more similar to credit cards because such loans are also unsecured. For personal loans, borrowers will acquire a fixed sum for them to spend on any purpose, which for this discussion will be home remodeling. This type of loan is usually spent on starting a small business, paying for medical bills, and, ironically, for consolidating multiple credit card debts. One of the obvious advantages of personal loans is that since the debt is unsecured, you are not putting any of your assets on the line. However, without any collateral securing the debt, expect to pay for high credit costs, and it will likely lower your credit rating in the short term.


3. Standard Home Improvement Loans

For nonemergency home remodeling projects such as resizing a bathroom or installing a new garage door, a regular home improvement loan is a good option. A home improvement loan provides you with a fixed sum to fund a project to make improvements in your property. Home improvement loans are unsecured and, like most unsecured loans, the interest rates tend to be higher. However, if you have a good credit score, the interest rates on your home improvement loan will be lower compared to someone with a bad credit score.

Standard unsecured home improvement loans pose more risk to the lender but are advantageous for the borrower as they are not putting any of their assets at risk. Unsecured loans tend to be smaller and have a shorter payment period. This makes unsecured home improvement loans ideal for emergency home fixes or upgrades to increase the market price of your home. The increase in market price ideally will pay for the loan and help earn you a little extra. Of course, things can go badly if the general property values in your area depreciate or poor contractor workmanship causes your property to lose value instead.

4. Home Equity Loan

Home equity loans would be the best option for major home improvement projects, such as adding a swimming pool or a granny flat in the property. As its name suggests, this type of loan is secured by the home itself, which means that the loan will have lower interest rates, lower monthly payment s, and long payment periods. Lenders tend to be more willing to grant larger sums for home equity loans than unsecured home improvement loans.

As advantageous as home equity loans may seem, borrowers should always keep in mind that the lenders will place a lien on the property. This means that while the loan hasn’t been fully paid off, the risk of losing the house is always present. While the monthly payments may seem manageable, you’ll also end up paying a higher interest rate because of the long payment period.

Based on the options presented above for home remodeling, you may have noticed that each has its pros and cons. Ultimately, your circumstances and ability to pay back the loan will help you decide which type of loan is best for your home remodeling project.