“Who wants to give me money?”
When I needed money to replace the siding on my house, I decided to research my loan options to make sure I made a smart decision.
I had wanted to replace the siding on my house since the day I purchased it in 2011. But, after hearing quotes ranging from $4,000 to $8,000, I just didn't have the funds. Now I’ve decided to look into taking out a loan to cover the cost. But where to start? I looked at the differences between funding my project with a personal loan, credit card or home equity loan. Here is what I discovered.
- Personal Loan - These loans are offered by most lending institutions and can be used for almost any purpose. Typically, they are unsecured and range from a few hundred dollars to a few thousand dollars. You can apply with your bank or credit union, and will usually need to show proof of income. You can be approved or denied within a few days, or maybe even a few minutes or hours. Interest rates on Personal Loans can be on the high side. According to the Federal Reserve, the average interest rate on a Personal Loan is about 10-12%. A Personal Loan would probably be best if you only want to borrow a small amount and have the ability to pay it back within a few years.
- Credit Card - You may not realize it, but when you use a credit card you are taking out a loan. You can complete a credit card application online, and will be approved or denied within minutes. The amount of credit extended to you depends on your credit worthiness, which is determined largely by your credit score. A line of credit could range between $300 and $10,000. The great thing about a credit card is that they are accepted pretty much anywhere. The downside to a credit card is that the interest rates can be very high, especially if you’ve missed even one payment. And having a revolving credit account can make it easier to spend more than you had planned.
- Home Equity Loan - If you own a home, a home equity loan allows you to borrow against the equity you have in your home. Equity is the difference between the value of your home and the amount you still owe. The loan can be used for many different reasons, but typically this loan is used for home improvements. The interest rates on a home equity loan are typically pretty low. But the term is usually fairly long, ranging from 10-20 years. The interest is usually tax deductible. One downside to a home equity loan is that you could possibly lose your home if you default.
After doing my research, I’m now leaning towards just painting my siding instead of replacing it. Avoiding a loan altogether sounds like the best plan to me. And I’ll still be adding to the equity in my home. So that's a win, win. If you need to borrow money, just make sure to do your homework, understand the agreement fully, familiarize yourself with the repayment terms and pick the option that works best for you.