If you’re considering a micro-renovation this summer—like a kitchen refresh, flooring upgrade, or lighting overhaul—you have options on how you can fund it.
Popular options include a 0% APR credit card or tapping into your home equity.
Both financing solutions are worth exploring for smaller projects in the $5,000 range, but they’re not created equal.
“You might be able to quickly save the $5,000 and cash flow the project. But if financing is needed, both a 0% APR credit card and home equity can make sense depending on your situation,” says Ashley Morgan, owner and bankruptcy lawyer at Ashley F Morgan Law, PC in Chantilly, VA.
By knowing how each one works and weighing their pros and cons, you can home in on the ideal route for your unique situation.
How they work
A 0% APR credit card lets you make purchases without paying interest for an introductory period. While the intro period varies by credit card company and card, it’s usually between 12 to 21 months. As soon as it’s up, the standard APR will apply to any balances you don’t pay off at the end of the billing cycle.
If you decide to tap into your home equity, on the other hand, you may do so through a home equity loan or a home equity line of credit (HELOC). To leverage these products, most lenders require at least 20% equity in your home (your home value minus what you owe on your mortgage).
A home equity loan gives you a lump sum of cash upfront. You’ll pay back what you borrow plus interest through fixed monthly payments over a specific term. In most cases, terms range from five to 30 years.
With a HELOC, you get a revolving credit line you can borrow funds from as needed, up to a set credit limit. The draw period—typically lasting 10 years—is when you can access the money and only pay interest on the amount you withdrew.
Once the repayment period kicks in, you’ll need to make both interest and principal payments. The repayment period is much longer than the draw period and usually goes up to 20 years.
Sweat equity is also something to consider when it comes to “funding” your renovation. (Getty Images)
Pros and cons of each option
The most notable benefit of a 0% APR card for a $5,000 reno is that you can borrow money without owing interest.
“If you have a strong credit score and can realistically pay off the balance during the promotional period, a 0% card can be one of the cheapest and quickest forms of financing available,” says Morgan.
A 0% APR card is also simple. You don’t have to worry about an appraisal, closing process, or lien documents. If you qualify, you can often get the funds immediately.
“For a $5,000 project, that convenience can be very appealing. It means you can start right away,” Morgan explains.
The main drawback of a 0% APR card is that the repayment timeline is often much shorter than people realize. 12 to 21 months might seem like a long time, but it’s not.
“If you put $5,000 on a card with an 18-month promo period, for example, you need to pay approximately $278 per month to have the balance paid off before the promotion expires. If you don’t, the interest rate afterward can be extremely expensive. I often see clients with rates nearing 30%,” says Morgan.
Home equity financing has a different set of advantages.
If you have substantial equity in your home, a HELOC or home equity loan can often provide a lower interest rate than a traditional credit card. Also, the repayment period is usually much longer, which can make the monthly payments more manageable.
However, for a project as small as $5,000, Morgan questions whether home equity financing is worth the effort and cost.
“Between the appraisal, origination, and closing costs, you could be looking at $300 to $1,000 paid upfront on a $5,000 loan,” explains Eric Croak, accredited wealth management advisor and president of Croak Capital in Toledo, OH.
You may end up spending a meaningful percentage of the project’s budget to simply access the home equity financing.
Additionally, home equity loans are tied to your home. If you miss payments on them, the lender may put it into foreclosure.
“No, $5,000 isn’t a lot of money and can be easy to repay but once you have a HELOC, it’s easy to continue tapping into it and overspending on home improvements or other expenses. A $5,000 project can quickly turn into a $15,000 project,” adds Morgan.
How to choose the right one
According to Morgan, a 0% APR credit card is almost always the best option, as long as you have strong credit and can realistically pay your balance off before the promo period ends.
Croak agrees.
“If you can pay back the $5,000 within the 0% APR period then you come out ahead by using a card,” explains Croak.
A home equity loan or HELOC may be a better move if you don’t qualify for a 0% APR card or need to stretch out your repayments.
Croak also recommends a HELOC if the $5,000 is part of a much larger project. For example, if you’re redoing your kitchen in phases and will actually need $40,000 in total.
At the end of the day, your focus should be on whether you have a plan to pay back what you borrow.
“Homeowners often worry about where the money is coming from, not what happens after the project is over. Financing a renovation is pretty simple. Paying for the renovations after the fact is where people get into trouble,” explains Morgan.
Before taking on any debt, take a close look at your budget, understand the repayment timeline, and make sure the project actually fits within your long-term financial plan.
