What's Wrong with a No Equity Home Improvement Loan?

A no equity home improvement loan will be more expensive than a home equity loan for home improvements due to higher interest rates. When no collateral is used to secure the loan, the lender is assuming more risk. Lenders will charge you for this risk with higher financing costs and less favorable terms.

Home Equity as Collateral

Home equity is most often used as the source of collateral for expenses to improve a home. The primary reason for this is the fact most people have the largest asset base in their home, providing them with the highest limits on a potential loan. Further, people justify this use of equity because they will be ultimately expanding the value of their home.

Other Sources of Collateral

If you would rather not use your home equity as the source for your financing, you can elect to use any other collateral that is larger than the total loan sum you need. Cars, stock certificates, business equipment and other assets may be placed as collateral with lenders. At least partially securing the loan will provide you with the most competitive loan rates and split the risk of the loan between you, as the borrower and the lender.

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