How to Pay for Emergency Home Repairs

Christy Bieber, The Motley Fool
Updated

There are several options you can choose from when you need to pay for emergency home repairs.

Man performing home repairs.
Man performing home repairs.

Image source: Getty Images.

As any homeowner knows, things tend to break -- and often at the worst times when there’s not a lot of spare cash available to pay for expensive repairs. In many cases these repairs simply can’t wait. After all, if you have no heat on the coldest day of the year or your water heater is flooding your basement, saving up for repairs isn’t a possibility -- you need a service tech out right away.

If you find yourself in this situation, figuring out how to pay for emergency home repairs becomes a top priority. Unfortunately, if you make the wrong choice for how to borrow, you could end up making your home repairs much more expensive than they need to be.

To help you figure out the best way to pay for emergency home repairs, we’ve put together this guide to your options, which include:

Paying with cash from an emergency fund or home repair fund

The ideal way to cover home repairs is to pay with cash. If you have an emergency fund, you can take money out to pay to fix whatever problems crop up. It’s a smart idea to have a dedicated savings account where you put money each month or each year to cover repair costs that inevitably arise.

Many experts recommend saving around 1% of the value of your home each year for maintenance and repairs. While you may not spend that much every year, you’ll eventually face a big repair -- such as a new roof -- and will need thousands of dollars from your fund to cover the expense.

If you have the cash available to pay for repairs, you can avoid paying interest on a loan and you won’t need to apply for financing in an emergency situation. Some vendors also offer discounts if you pay for a job with a check rather than charging the repairs or taking out a loan.

Putting the repairs on a credit card

If the vendor you’re doing business with allows you to charge repairs, this is an easy option -- especially if you put the repairs on a credit card you already have open. Charging the repairs could also allow you to earn credit card points, miles, or cash back.

The problem with using a credit card is that interest rates are typically very high. This means your home repair will be much more expensive if you don’t pay off the full balance on your card when your statement comes due. If you make only the minimum payment, you could end up paying thousands of dollars in interest over many years before your repairs are paid off.

You could save on interest by using a 0% APR credit card. These cards have special promotions where you pay no interest for a set period of time, such as 15 months. But you’d need to apply for one of these cards, as most often the 0% promotional offer is open only to new customers. You’ll want to make sure that you can pay off the balance before the promotional period is over to avoid high interest costs.

Whether you use a new or existing card, there’s another risk to be aware of. If the repair is an expensive one, you could also hurt your credit score by maxing out your credit card -- or you may not have a large enough line of credit to cover the full repair cost.

Taking out a Payday Alternative Loan

Some homeowners turn to payday loans to cover emergency repairs, but this is a very bad idea because the APR on these loans can be upwards of 400%. There’s another option for credit union members who need to borrow a small amount for repairs. That option is a Payday Alternative Loan (PAL).

PALs are loans that allow you to borrow up to $1,000 with capped fees. They’re meant to be paid off over a few months and to serve as an alternative to costly payday loans. If you have more minor repairs to make and you’ve been a member of a credit union for at least a month, this could be a good option for covering your repair costs.

Using a home equity loan or line of credit

If you have a home equity line of credit open, you can borrow as needed -- up to your credit limit -- so it’s easy to borrow to pay for repairs. The interest rate on a home equity line of credit is usually well below the interest rate on credit cards.

Home equity loans also have lower rates than credit cards in most cases, but you must borrow a set amount up front rather than getting a line of credit you can draw from as needed.

Tapping into the equity in your home to pay for repairs is risky because the debt is secured debt. If you don’t pay off the loan, you could be foreclosed on. But with this type of loan you could potentially be eligible for a tax deduction for interest paid, which further offsets your interest expense.

One big downside is that it can take a while to apply for a home equity loan or a line of credit if you don’t already have one open. And you actually need to have sufficient equity in your home to qualify. Still, this option is worth looking into -- especially if you have an open HELOC you can draw on or if you have a costlier repair to make that you know the price up front and can fund with a home equity loan.

Take out a personal loan

Personal loans can also be a great way to fund repairs, especially if you have bigger fixes to make to your home. Banks, credit unions, and online lenders all offer personal loans, with the amount you can borrow typically ranging from around $1,000 to $40,000 or more. The interest rate is typically below the interest rate on credit cards, and most borrowers can qualify for an unsecured personal loan so you don’t need collateral.

Personal loans can often be funded within a week or so, with some lenders promising money as soon as the day after you apply and are approved. You’ll have a set repayment timeline, which is usually a few years, so payments will be affordable but you’ll know exactly when you’ll be debt free.

Personal loans are an ideal choice for both large and small repairs if you don’t want to take out a home equity loan, can’t draw from a HELOC, and don’t have a 0% interest card you could pay off before the promotional rate ends.

What’s the best way to pay for emergency home repairs?

As you can see, there are lots of options to pay for emergency home repairs, including home equity loans or lines of credit, credit cards, Payday Alternative Loans, and personal loans. You just need to consider which type of financing makes the most sense given the credit available to you and the amount you need to borrow for your repairs.

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