Whether it’s a kitchen remodel or repairing a broken roof, home projects can be expensive. When it comes to paying for these repairs, experts recommend saving ahead of time.
If that isn’t possible, you can earmark cash windfalls like tax refunds and work bonuses for this type of expense. Or consider these options: One of the ways homeowners save money on repairs is by investing in a home warranty plan. If you are unfamiliar with them, sites like https://www.cinchhomeservices.com/homeowners/services/appliances can provide you with more information on the services offered.
One of the best ways to pay for home repairs is to use cash you already have. This method allows you to avoid interest costs, which can add up over time.
You can start building an emergency repair fund by setting up an automated savings plan. Try to save 1% to 3% of your income each month.
If you don’t have a lot of cash saved, a personal loan is another option. These loans are available from a variety of lenders, including some online. You can often apply for a personal and many lenders offer fast approval. You can also choose a loan specifically designed for home improvement, like an FHA title 1 loan. These loans can be structured to meet your needs, but they tend to come with higher interest rates than options that aren’t specific to home improvement.
- Credit Cards
Homeowners will likely find themselves having to pay for unexpected renovation costs at one point or another. Credit cards can be useful for these expenses, particularly ones that offer a good welcome bonus or rewards in the form of cash or points, as well as important protections against contractor fraud and botched projects.
But it’s important to be careful not to get carried away and spend more than you can afford. And as a general rule, you should prefer other forms of funding — like personal loans or home equity lines of credit — over credit cards. These options typically have lower interest rates than those of credit cards and don’t require you to put up your house as collateral. Also, interest paid on credit card debt is not tax deductible the way mortgage and home equity loan interest is.
- Home Equity Line of Credit (HELOC)
Many homeowners also leverage their home’s equity through a home equity line of credit (HELOC). Unlike a home equity loan where the amount you receive is in one lump sum, a HELOC allows you to borrow against your available equity on an as needed basis. You pay back what you borrow with interest.
Most HELOCs offer a draw period, often for 10 years, during which you can access your available credit as needed. You typically make interest-only payments during this time.
Like a second mortgage, HELOCs and home equity lines of credit put your house up as collateral, so you could lose your home if you fail to make payments. Plus, a home equity loan or HELOC may affect your credit score. That’s why it’s important to carefully consider these options and weigh fees, repayment schedules and interest rates.
- Payday Alternative Loans (PALs)
Personal loans offer a lower APR than payday loans, and credit unions generally report PAL repayments to national credit bureaus, which can help build a borrower’s credit history. They also typically have longer terms and consistent installment payments, which can allow for a better payment schedule.
While PALs are a better borrowing option than traditional payday loans, they are still not without costs. If you are considering using a PAL for home repairs, explore all of your options before doing so. Fortunately, there are several other borrowing alternatives to a traditional payday loan that can be used for financial emergencies. These include cash advances, line of credit, and even a mortgage equity loan. Each of these options has advantages and disadvantages, but they are all far more responsible than a payday loan.
- Other Loans
Depending on your financial situation and amount of home repairs you need to make, you may be able to obtain financing from the company performing the work. This option typically offers a more favorable interest rate than credit card financing. Another loan alternative is an unsecured personal loan. While a personal loan does require you to offer your house as collateral, it can still be a better financing option than using a credit card.
If you don’t have the cash for a repair, the best solution is to save it up until you can pay for the project outright. This will prevent you from paying expensive interest costs and also protect your credit score. Likewise, check with your insurance provider to see what portions of your home repairs may be covered.
Many people save themselves from thousands of dollars with a protective plan in place. A simple home warranty package can prevent a lot of money in repair costs.