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Home Improvement Charge Cards vs. Home Equity Line of Credit. Which to Use for What and When.

Understanding home equity and home improvement credit is a vital part of owning a home. A home equity line of credit is often used to finance home improvements, though there are other ways (such as a home improvement charge card) to get the job done. If you are interested in flipping a house, or just looking to make improvements you can’t afford, you will absolutely need this information.

Home improvement charge cards are usually the way to go. Applying for these cards is easy, and you can learn quickly what to watch out for when using these cards. You will discover that these cards offer you much more spending power than a home equity line of credit, and the rates tend to be much better. There are no spending limits and payoff limits on these cards, and you are presented with the chance to buy exactly what you need for a much better price.

Home Equity Line Of Credit

For those who are unaware, a home equity line of credit (or HELOC) is a loan taken out against a house for various reasons. Home equity lines of credit are often referred to as a “second mortgage” because it can be considered a second house payment. Many people take out home equity lines of credit because they are in need of financing, and their house is their most valuable asset. Home equity lines of credit are loans that function as a credit card – instead of being loaned a lump sum, the borrower can use the money over time as long as they remain below an agreed upon credit limit.

Beware When Using

Home equity lines of credit are tricky, and should never be used for personal financing such as groceries. This is referred to as HELOC abuse and is considered one of the major causes of the mortgage crisis of 2009. Instead, home equity lines of credit should be used to fund major purchases. These include education and medical bills, but HELOCs are most often used for home improvements. HELOCs can be paid back in several ways. Most function under a variable interest rate, as well as a variable pay period. The most common method of paying back a HELOC is through minimum monthly payments throughout the lifespan of the loan. Often, these payments are “interest only,” meaning the borrower simply pays back any interest they owe.

How to Get a Good Home Equity Rate

There are a few tips and tricks to getting a good home equity rate. If you have bad credit, it may be difficult but is certainly possible. As with all major loans, you are starting off in a better position with good credit. Those with questionable or bad credit should consider such as understanding the value of your house is absolutely essential to taking out a home equity line of credit with bad credit. Knowing what you can get will give you leverage in negotiations with lenders. Other tips to consider is ensuring to have proper expectations. Understanding the value of your house and bad credit will help with this – you should not be hoping for an unrealistic loan, or you will be disappointed.

  • Do some serious shopping around for your loaner. Doing your research can save you more money than you think.
  • Look at more than just the quotes. Many home equity loans are buried with hidden fees and costs. Look out especially for closing costs, which can be an unwelcome surprise.
  • Investigate your ability to open a HELOC with any current loaners. You may get a better offer from a creditor you currently work with, especially your current mortgage holder.
  • Thousands of places offer HELOCs, however, Bank of America and Citimortgage are clear standouts. If you are looking to open a HELOC outside of your current credit network, this is a good place to start.
  • Bank of America is highly plugged in, offering 24/7 online assistance and a suite of tools to help you stay on top of payments.
  • Both offer a full selection of HELOCs, making it easy to personalize your loans for your needs.
  • Citi Mortgage offers incredibly low down payments and negligible fees in general, and you don’t’ need private mortgage insurance to open a HELOC.
  • A relationship with either may qualify you for benefits including lower interest rates.

What Are Home Improvement Charge Cards?Image result for Home equity

These are cards that are offered by home improvement stores. Applying for these cards is simple because you can apply in the store or online. You might want to get the home improvement card from most stores because they often provide you with the savings and prices you need. You can use these cards to save money on special purchases, and the company will give you a promotional rate if you are making a large purchase. You are given more spending power with this card because they are not always bound to just the store where they came from.

What To Watch Out For When Using These Cards

You must look into the cards carefully because they are all a little different. You might want to use the cards at other stores because you are hoping to pick up the rewards, and you could use these cards for emergencies. These cards do many things for you, and there have far fewer fees attached. Consider why you would want to apply for a credit card instead of taking out a home equity line of credit.

No Annual Fee

Applying for these cards does not require a fee, and you are not asked to pay a fee just because the card has been approved. You are not asked to pay a fee if you pay off the card early, and you are not subject to the banking rules in your state. You do not need to worry about paying off the card early, and you could leave that line of credit open forever. There is no payoff date, and you are not stuck paying the same amount every month. If all you can afford is the minimum payment, you can pay that every month.

The Stores Offer Great Service

You can get great service through these cards when you go to the store, and you might want to come to the events that offered for cardholders. You could call the customer service line to get help from the company regarding what you have bought, or you could ask them to set up special purchases for you to be picked up at your local store. You might call the company for help with the rentals you want to make, and they will make certain that you have everything squared away. The home equity line of credit you have chosen cannot do these things for you, and it is often hard to spend that money because not all banks give you a card to use.

Service From The Logo

You get service from the company that manages the card. You could’ve to get care from Visa, MasterCard, Discover, or AMEX depending on who the store uses, and you could call their customer service department for help. They often explain how to better use the card, and they could help you book travel or get a car rental when you are stranded. You will find that you could easily call the company on the logo for more help than you would get from the store. You will notice that you could get this company to do things for you that the home improvement company cannot help you with, and you will find that you could use both companies to get what you need.

Better Rates 

You need to know what to watch out for when using these cards, but you will find that the rates are always better when you use cards like this. The cards can give you lower and lower rates, and you will have a chance to drop your payments every time you call for a lower rate. The card gives you more options, and you can continually save money.

Home Improvement Charge Cards

If you plan to use a HELOC for improvement, you should consider a home improvement charge card instead. A home improvement charge card is a closed loop credit card that allows you to purchase the materials for home improvement. You can make payments for these credit cards over time, weakening the blow of the cost. If you have bad credit, closed-loop credit cards are often easier to get approved for. If you are worried about acceptance, try to develop a history with the store. If the lender notices that you can make purchases in a timely manner, they are likely to approve you for the card. Both Home Depot and Lowes offer home improvement charge cards, which are easily the best on the market:

  • Home Depot offers 1 non-commercial credit card option, though it is a powerful home improvement charge card.
  • This low-interest card will give you access to all of Home Depot’s products and services.
  • Lowe’s offers several different home improvement charge cards, which may make it the better option.
  • As with Home Depot, a Lowe’s card will grant you access to their full suite of products and services.
  • However, you may apply for deferred credit financing which will give you more time to pay off big purchases.

Conclusion

There are many people who will use these home improvement cards because they need a way to pay for projects around the home. You can use a card instead of a HELOC because it is cheaper.