Monday, 30 November 2020

How to Get a Garage Loan (and Is It Worth It?)

When I met my now-husband, his house didn’t have a garage. I quickly learned the downsides to this: bird droppings all over the car in the summer, clearing snow in the winter, no place to store your stuff, and the dread of needing something from the car in the rain. If we’d planned to stay in that house, building a garage would have been a big priority, as it is for many homeowners.

If you’re one of those homeowners, the convenience a garage provides may seem priceless. But you still should make a smart plan to finance a garage addition or upgrade.

This could mean garage loans, but borrowing has some big disadvantages. Let’s look at the different ways of paying — and evaluate the pros and cons of each — so that you can make a smart choice.

How to finance your new garage

A new garage comes at a big cost. HomeAdvisor indicates the national average is $26,092, although prices vary depending on the size, whether you add amenities such as electricity or heating, and whether it’s attached or detached.

To cover these costs, here are your main options.

1. Savings

The best way to finance most home improvement projects is to pay out of pocket. The benefits of paying for a garage with savings include:

  • Saving on interest: Interest makes your project more expensive.
  • Simplicity: You don’t have to deal with finding and qualifying for a loan.
  • Potential cost savings: You may be able to negotiate discounts with contractors and suppliers by paying in cash.

Of course, there are some downsides as well, including:

  • Opportunity cost: You can’t use the money for other goals such as paying off student loans or saving for retirement.
  • Project delays: If it takes a long time to save enough, you may have to wait months or even years.

To save enough to do the project ASAP, create a budget that prioritizes saving for your garage project and other important goals.

2. Garage loans

Some lenders offer dedicated garage loans, and some builders or suppliers also offer financing. The benefits include:

  • Convenience: If you borrow from the company building your garage, you don’t have to worry about going through a separate lender.
  • Availability of funds: Garage builders and lenders know how much construction costs, so they’re able to provide loans with enough funding.
  • Timeliness: You may be able to secure financing in a few days, which means you can get started right away.

But for most homeowners, the disadvantages of garage loans significantly outweigh the advantages. Some downsides include:

  • Interest costs: It costs money to borrow, and interest makes your project much more expensive. Use our personal loan calculator to see how much you’ll pay.
  • Limited options: There are fewer options for garage loans compared to those for general personal loans.
  • Dealing with lenders: You’ll need to go through the process of qualifying for financing and getting loans disbursed. This can take a few days and requires you to provide financial information.

Given these drawbacks — and the interest costs in particular — it’s generally not a good idea to take out a loan to add or upgrade a garage unless there’s a pressing safety issue.

But if you’re considering garage loans anyway, explore options and talk with the garage builder or companies supplying materials to evaluate loan terms, the qualifying process, and total cost.

3. Personal loans

Personal loans can be used for any purpose, including construction or remodeling of a garage. The benefits include:

  • More loan options: There are many choices for personal loans, including loans offered by national or community banks, credit unions, peer-to-peer lending networks such as LendingClub, and online lenders. With more loan options than for dedicated garage loans, you’ll be able to shop for the best terms.
  • Convenience: You can apply for personal loans online quickly and often get funds within a few days.
  • Timeliness: Since you get your money quickly, you can start your project without waiting months or years.

The downsides of using personal loans to fund your garage project also need to be considered. These include:

  • Interest costs: You still have to pay interest on personal loans.
  • Dealing with lenders: You may not be able to qualify for the loan you need, depending on your credit score, income, and other factors.
  • Restrictions on loan amounts: Personal loan lenders have minimum and maximum limits. Depending on your lender, you may not be able to borrow enough to fund the project.

Personal loans, like garage loans, typically have bigger cons than pros. If you do decide to go forward, make sure to compare offers among multiple lenders. Our list of the best home improvement loans is a good starting point.

4. Home equity loans

Home equity loans are available to those who own a sizable portion of their home compared to what they owe on their mortgage, and these loans can be used to fund a garage remodel. Some advantages include:

  • Lower rates than other financing: Because home equity loans are secured by your home, interest rates are typically lower than for other types of financing.
  • Tax deductibility: If you use a home equity loan for home improvement, you may be able to deduct the interest.

But the disadvantages are substantial and include:

  • Putting your house at risk: If you can’t pay back the loan, you could lose your home to foreclosure.
  • Difficult and long qualifying process: You’ll qualify only if you have enough equity (ownership) in your home. Often, lenders won’t allow you to borrow if your total loan balance on all mortgages exceeds 80% to 85% of what your home is worth.
  • High costs of getting a loan: You’ll probably have to pay for an appraisal and may owe other closing costs.

The downsides make home equity loans a bad choice for many homeowners. And, as with the other loans, finding the best offer is important if you decide to borrow.

Should you borrow for a garage project?

Taking a loan for a garage project usually doesn’t make financial sense, especially as home improvement website Fixr estimates the return on investment for a garage addition at only about 81% of what you spend. Paying interest only adds to the cost of your project.

If you need a garage now, borrow responsibly by keeping the total cost of the project as low as possible and shopping carefully for the best financing.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!

Lender APR Range Loan Amount  
1 Includes AutoPay discount. .
2 Includes AutoPay discount. .
3 .
4 .
5 .
6 .
7 .
8 .
* .
7.73% – 29.99% $1,000$50,000 Visit Upstart
5.81% – 15.37%1 $5,000$100,000 Visit SoFi
6.87% – 35.97%* $1,000$50,000 Visit Upgrade
8.00% – 25.00%2 $5,000$35,000 Visit Payoff
4.99% – 29.99%3 $10,000$35,000 Visit FreedomPlus
5.99% – 18.99%4 $5,000$50,000 Visit Citizens
15.49% – 34.49%5 $2,000$25,000 Visit LendingPoint
6.16% – 35.89%6 $1,000$40,000 Visit LendingClub
6.99% – 18.24%7 $5,000$75,000 Visit Earnest
9.95% – 35.99%8 $2,000$35,000 Visit Avant
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