Most consumers find that at one time or another some kind of credit or financing is needed for major purchases. In today’s financial environment, even though credit is not as easily available, when available it is easy for individuals to accept more credit than they can handle. It is for this reason that many financial institutions require some form of collateral or security before extending credit to new clients.
The collateral offered as security is a kind of insurance on the loan. In the event of non-payment, the lender has legal access to the collateral in order to be reimbursed. Lenders tend to be more flexible in granting credit under a collateral agreement, so even consumers with a poor credit record can usually make arrangements for a secured loan.
The most common type of secured credit is the home-improvement loan. Many home owners take advantage of this kind of loan, because it is relatively easy to arrange, and there are some definite advantages to investing in one’s own home. Banks and other financial institutions are well aware that improvements to a home can greatly increase the amount of equity, and this in turn solidifies the security for the funds that have been extended to the consumer.
Unlike work done on rental properties, improvements to a person’s own residence are benefits that can be enjoyed directly. A home improvement loan may be needed for extensions, renovated bathrooms and kitchens, or improved flooring. Heating systems, wiring, and plumbing all need upgrading or repairing sooner or later, and if the owner resides in the same house for any length of time, the roof will have to be replaced. Lenders are only too pleased to be able to extend funds for these projects, knowing that the loan is secure and increased equity in the property is assured.
Because of the security of real property collateral, home improvement loans are typically offered at low interest rates. Nevertheless, consumers should compare the rates offered from one lender to another. Quite frequently, it is possible to negotiate better terms, especially when the consumer has a good credit rating, as well as ownership in the property concerned. The internet is always a good source of information about current rates, but in the end, only individual financial institutions can give accurate information about total costs. It is important to be aware of any hidden costs before signing any agreement with the lender.
The amount of credit offered through a home improvement loan will depend on the type of property and the current equity contained in it. Home owners should avoid taking more credit than they actually need, whether in the form of direct funds or through a line of credit. Over improvement can be counterproductive. It is possible to invest more money in the improvements than could be recovered by the sale of the home, so this should be avoided. The best plan is to assess the renovations and extensions that are needed before approaching the bank. This way, there is no doubt about the amount of money needed.
Although home improvement loans are easily found, it is important for home owners to understand that by using their property as security, they are in fact surrendering a part of the ownership to the lender. If repayment of the loan becomes difficult or impossible, lenders technically have the legal right to seek reimbursement through the sale of the home. This action would be considered rather drastic, and other arrangements could probably be made, but, nevertheless, it is a possibility and owners need to be aware of it.
