The Difference Between Secured and Unsecured Home Improvement Loans

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Many people who plan to finance their home improvement projects, likely come across both secured and unsecured home improvement loan products. But what’s the difference? Learn about each below and determine which might be the best avenue for your upcoming home improvement project.



What are Secured Home Improvement Loans?


Secured home improvement loans are loans offered by banks or financial institutions where the offering party takes an ownership interest in a borrowers asset. This practice is known as “securing” the asset, hence the term secured loan. Banks use this practice in order to decrease their risk when lending money. When a bank takes either full or partial ownership of a borrower’s asset, it is documented that ownerships will return to the borrower upon the loan being paid off in full. If the borrower defaults on the loan or is unable to repay the amount borrowed for whatever reason, the bank has ownership of the borrowers asset in order to recoup their losses.

The most typical asset that is secured with a secured home improvement loan product is the borrowers house. Other assets that can be secured but are less common in home improvement situations are vehicles, business entities, or even the home improvement product itself when applicable (i.e. solar panels). Typically, when an asset is secured it requires an appraisal or value assessment so the lending institution can be sure the asset is worth equal or more than the money being lent. Home equity loans are the most common of the secured home improvement loan products available today.


What are Unsecured Home Improvement Loans?


Unsecured home improvement loans operate differently than secured home improvement loans. Unsecured home improvement loans are offered by lenders who do not take an ownership interest in a borrowers asset. In this situation, the lenders use an aggregate of the borrowers available information (i.e. credit, education, employment, etc..) to determine whether they are qualified, and an interest rate that mitigates the lender’s risk in lending the money.

Generally speaking, these types of loans can be easier and quicker to obtain simply because there is no appraisals, or securitization process taking place. These loans also tend to be more flexible because the borrower is able to use the funds freely within the scope of their project, where some secured products can have limitations. The most common form of unsecured home improvement loans offered today are also called “personal loans”


Want to see what rates you would qualify for with up to 10 unsecured home improvement lenders? Learn more and check your rates here without it affecting your credit!

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