More Americans Insert Credit for Upgrades
During the past 12 months, 5.41 million Americans borrowed an estimated $16.16 billion for home improvements, with the average loan amount being $2,990, according to Finder.
HOUSTON—With Houstonians needing to make nearly $51,000 to afford a home valued at $142,000, it is likely that many of these homeowners are part of the great majority of Americans plunking down credit cards, payday loans, peer-to-peer lending, and even personal loans through friends and family to pay for home improvements. In fact, during the past 12 months, 5.41 million Americans borrowed an estimated $16.16 billion for home improvements, with the average loan amount being $2,990, according to Finder.
The majority (46.3%) are inserting plastic to pick up the home improvement tab, followed by personal loans (25.9%), borrowing from friends and family (16.7%), peer-to-peer lending (7.4%) and short-term loans (3.7%). In addition to the survey, Finder analyzed which of the five financing options might be more affordable at the end of the day, revealing that credit cards were the most affordable of the five financing options, with total interest paid during the life of the loan being $297.27 at an average interest rate of 18.62%.
Following credit cards are personal loans with total interest being $312.72 at an average interest rate of 10.57%, short-term loans with total interest being $54.54 at an average interest rate of 400% and peer-to-peer loans with total interest being $802.82 at an average interest rate of 18.01%. The analysis took into account the initial principal borrowed as well as the interest accumulated during the life of the loan.
“Loans can be a viable option for those looking to expedite the home renovation process, particularly in making updates that will net more money in a sale. However, it’s more important that we’re properly researching and comparing all our borrowing options, weighing the true cost in the long run, the principal and the interest,” Jennifer McDermott, consumer advocate, tells GlobeSt.com. “Despite the analysis revealing credit cards offer the least interest throughout the life of the loan, financing options should be determined on a case-by-case basis. And, a repayment plan should be set up that is realistic within budget and timeframe.”
Finder analyzed city and state data sourced from Zillow, the US Bureau of Economic Analysis, Urban Institute and Barchart to calculate how much would be needed to live comfortably in Houston with a home valued at $142,000 and a deposit of $113,600. This assumes non-housing expenditures of $28,853, non-mortgage debt of $15,332 and an interest rate of 3.84%. The required salary would be $50,568, GlobeSt.com learns.