When you are interested in doing a home renovation project, one of the issues you will definitely need to be keen on is how to finance it. If you are not careful, you may end up accumulating more debt than you need, which could put your finances in jeopardy. One of the ways of avoiding this is by understanding the various financing options at your disposal. The best way to make the most out of them is by going through each option you have, carefully categorizing the pros and cons of each. By the end of the process, you should have a good idea of which methods of funding suit you the most. Some of the common ones include:
Using hard cash
One of the most convenient ways of funding a home renovation project is by using hard cash. This means using some of the money you have in your account (such as your savings) rather than by relying on a line of credit.
Some of the benefits of using this funding method is the fact that it can turn out to be the cheapest. You will not have to pay any interest on the money, which can significantly drive up the actual cost of the renovation. In addition to that, the fact that most contractors accept cash means that you will have no problems paying for the service from any contractor.
However, there are a few problems that make this method of funding less than ideal. The most important is the fact that most renovation projects cost a lot, and having to save up for them might not be practical for many people. It costs an average of between $10,000 and $60,000 to remodel a kitchen. This means that if you want to save up for it, you might have to wait for quite some time before you accumulate all the cash you need. The next best thing is to use some of the cash you have to pay for the project, and then top up the rest using other lines of credit. This way, you won’t need to borrow as much.
Your credit card
You can also use a credit card to pay for the renovations if the limits allow you. The best way to do this is by using a credit card that has zero or low interest. This helps you limit the interest payable on the card. Some of the disadvantages of using this method include the fact that not everyone has a low interest credit card, which means that they might have to still pay high interest rates. Another concern is the fact that your card limit might not be enough to meet the cost of the renovation. A way round this would be to use cash or other methods of funding for the extra amount above your limit.
Using your credit card to pay for the renovation can seem convenient. However, it’s important that you assess your finances before going ahead. The last thing you want to worry about is getting a debt on your credit card, and then finding it difficult to pay it off later. This will result in a poor credit score, which might be difficult to reverse in future.
Using the credit lines the contractor has
A number of contractors offer credit these days. To use such services, you only need to go through a credit check to ascertain that you can take on the debt, and then sign on the papers. Once this is done, the contractor will do all the work, and you can then pay them using monthly instalments once the project is done.
One of the major advantages of doing this is that it’s hassle free; you will be getting the credit from the company doing the renovation which makes it simpler than approaching a bank. In addition to that, the rates they charge are usually much lower than what you would get from other lenders.
One of the main downsides of using this funding method is the fact that only a few contractors offer financing. Finding an ideal one might take some time.
Using other lines of credit
You can also try using other informal lines of credit such as using a car title loan. These are easy to find and apply for. However, they are usually not ideal for most renovation projects due to a number of reasons. For one, the amount of money that you are likely to get from such lenders might not always be enough to cover the entire cost of renovation. Some lenders of this kind also charge very high interest rates, making them one of the most expensive options.
In summary, you have many choices to pick from when thinking of how to fund your renovation project. The key to getting the right one is going over the key pros and cons of each before deciding on which one to work with.