4 Ways To Finance A Home Renovation

family renovating their houseHome Equity Line of Credit
A Home Equity Line of Credit (HELOC) is an open credit line that is secured by your home’s value. HELOCs offer flexible terms and lower upfront costs than most other loans.

Home Equity Loan
A Home Equity Loan (HE) allows you to borrow a fixed amount of cash, which you receive in one lump sum. However, upfront fees can be high.

Credit cards
Credit cards can work for minor touch-ups, but funding bigger projects this way can leave you with steep interest payments and end up costing much more than planned.

Personal loans
Personal loans are short-term loans that sometimes have high interest rates and upfront fees.

Do your research and talk with us at Advantage One to help find the best option for your needs.

Your Turn:
How did you fund your home renovation? Share your choice with us in the comments!

The Dangers of Taking a Personal Loan to Finance Your Wedding

Consider the long-term costs of taking a loan to pay for one day of happiness

The cost of weddings has risen in recent years, leading to couples taking out loans or paying for items with credit cards. Yet starting your married life in debt could be a dangerous financial decision for more reasons than one.

Weighing the Costs
According to a survey conducted by renowned wedding resource site TheKnot.com, the average cost of a wedding in 2015 was $32,641. While some will gladly pay this amount for the wedding of their dreams, most Americans do not have enough money saved up to do so without resorting to borrowing.

In an article on TheKnot.com, contributor Rachel Torgerson advises against taking out a personal loan to finance your wedding, agreeing with financial planners on the dangers of taking on such large debt for one day of your life.

“The problem with personal loans is that most often people are taking them out because they’re trying to spend cash they don’t have. I would also lump in credit card spending here, because I think a lot of people pay for wedding-related things with a credit card and they may or may not have the cash to pay it off in full,” says CFP Laura Lyons Cole, personal finance contributor for financial planning website MainStreet.com.

If you’re considering taking out a large-sum loan, it means you probably don’t have the money to afford such a high-cost wedding in the first place. In general, money and financial stress are top issues that couples will argue over. In fact, studies have shown a high correlation between high-cost weddings and divorce rates.

Additionally, Josephon advises to consider how your ability to put money toward other savings, like a retirement savings account or your future children’s college savings, may be hampered when you start your marriage off with serious debt.

Paying Long Term for a Short-Term Event
With a consumer installment loan, you will be required to make payments for both principal and interest through the wedding loan term, Karimi explains. This means you will end up spending more for your wedding day than the actual cost of the event.

Karimi notes that a $32,000 loan at a 7.5 percent APR would take 48 months to pay off, with minimum payments at a bit under $775 per month-and that’s for buyers with excellent credit.

Even if you can afford such high monthly payments, think of the time it would realistically take to pay off this single-day event. Additionally, you would be carrying debt during a time of major change in your life; you may want to buy a home or a new car, or start a family, and such debt could prevent you from being able to open other lines of credit to pay for these expenses.

Don’t forget that creditors and lenders will look at your current financial standings, including other loans and lines of credit you have out. With a majority of young adults saddled with high student loan debt, their loan amount and interest rate offered will be affected by their total debt.

While you can get a loan with a lower credit score, you will ultimately pay more for it because of higher interest rates. Most financial advisors warn against taking such a loan, known as a bad credit personal loan.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Personal Loans Versus Credit Cards

Advantages and drawbacks of each type of lending

Personal loans andCardsVsLoans_Featured credit cards, should they be used intelligently, can be great ways to finance your wants and needs. As personal finance author Greg McFarlane writes on Investopedia.com, credit in general grants us temporary access to other people’s money, and for a time, it is a win-win for all parties.

“The lenders get interest, the borrowers get leverage and the economy grows. What’s not to love?” he said. “Without credit, capitalism would stagnate.”

But which lending method is better: personal loans or credit cards? Let’s look at some of the high points and low points of each.

Personal loans
This type of credit is unsecured, meaning there is no collateral involved. Because this is a higher risk for the lender, as there is nothing of which they can take possession in the event of default, interest rates are fairly high. And because you will have a balance to be paid from day one, you are paying that interest starting the moment you sign on the dotted line. Still, these interest rates are typically lower than those of most consumer credit cards, giving personal loans an advantage there.

Another advantage of a loan is that it comes with a set term during which you will be repaying it, and a set amount to pay, which helps with budgeting. At the same time, credit card terms are either longer or unspecified, allowing for lower, although inconsistent, payment amounts.

“Many personal loans have a payback period of no longer than 60 months, or five years. Credit cards tend to amortize your payment over eight to 10 years, resulting in a lower payment over a longer time,” said debt adviser Steve Bucci of Bankrate.com.

Credit cards
While credit cards do come with inherently high rates — so high, in fact, that the president and Congress had to artificially cap those rates from outside the free market — for the first month after you purchase something on the card, you are technically getting a zero percent interest rate, McFarlane says.

“Should you choose to take 30 days or longer to pay for an item you bought on a credit card? Well, that’s when you’re failing to take advantage of the inherent benefit of the method of payment,” he explains.

Furthermore, credit card companies often offer a grace period for payments. That means you have more than a month to come up with enough money to pay off your balance and avoid being charged interest — that’s at least two pay periods to gather your own money and use it to pay off the money you borrowed.

Also, not having to wait for paperwork approval when you need or want the money, as you do with loans, is yet another way your credit card acts just like cash (except in plastic form).

Exceptions to these details exist when you are talking about business loans or credit cards, or about personal loans obtained for use of credit card consolidation. Regardless of how you are using your means of credit, make sure you are looking carefully at the terms of the agreement. Let us help you choose the method that best suits your needs, and then take full advantage of its benefits.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.