Loans for Home Improvement
Written by Robert Bester, Consumer Finance Expert Robert has been a writer for six years, specialising in consumer finance and the UK lending market. Concentrating on consumer credit products, Robert writes informative articles that help customers manage their personal finances efficiently.
23rd November 2020
4 minute read
If you love the location of your home, but it could use some TLC, then a home improvement loan could be for you. For homeowners who want to carry out projects to add value to their home, or to help it fit their needs better, this form of personal loan could be a great choice.
Whether you want to add an extra bedroom for the impending arrival of a new family member, or you’ve got your sights on a fancy new kitchen, here we tell you all you need to know about home improvement loans.
What is a Home Improvement Loan?
In most cases, a home improvement loan is simply a personal loan. Personal loans can be used for a number of reasons, including debt consolidation, holidays and home improvements.
In the case of home improvements, you might want to add some extras or extend your home so that you could make a profit from a future sale. Or you may simply want to avoid the extra expense and hassle of moving if your home isn’t quite perfect for you right now.
Whether you’re raiding some savings and require a top-up of funds, or you are wholly relying on a home improvement loan to kick-start your project, you can choose to borrow from a loan provider to give your plan a boost. You agree a set amount of time to pay the fixed sum back, plus the interest. This is how the lender makes a profit.
Loans for home improvement: a summary
- For property repairs
- For property extensions
- Usually fixed interest
Along with finding the best possible deal for you, you should always remember that – depending on what changes you’re planning to make – the money you spend on a property won’t always be reflected in the future sale price. Some home improvements are more likely to add long-term value than others, so do your DIY homework before you set the concrete mixer spinning.
Compare Home Improvement Loans
Smaller loans for home remodelling projects tend to be unsecured loans, which means they usually have fixed interest rates. You pay a fixed sum back every month and know what’s coming out of your budget.
However, you can also choose to take out a secured loan that uses your home as collateral. Doing so could allow you to borrow a greater sum and you could access lower interest rates too. However, this is a risk because if you are unable to pay your loan then your home could be repossessed as payment.
With either avenue, you may find that borrowing slightly more earns you a better interest rate, but it is usually best not to borrow more than you need unless the total pay back is less.
For example, if you want to borrow around £3,900 for a bathroom with a special spa bath, you may find that borrowing £4,000 gets you a better interest rate, and means you pay less back overall, although it is important to check the details before agreeing to the loan and signing your agreement, as this may not always be the case and sometimes it is best to only borrow what you need.
Look at the Total Costs
Whether you decide on a secured or an unsecured loan, you’ll want to compare deals as straightforwardly as possible. This means looking at the total cost of a home improvement loan, not just the representative interest rates or monthly repayment cost.
It’s important to know you can afford to pay back the monthly sum for the full length of the loan. Getting into greater financial difficulty for a loan can lead to a spiral of further debt, so make sure you can afford repayments and if you’d like a few months grace look out for deals that include a repayment holiday.
Of course, there’s more to getting a good deal than just looking at the interest rate advertised, so let’s look at the bigger picture. Firstly, remember that the annual percentage rate (APR) shown will only be accessible to those who meet the criteria, for those who don’t they’ll be offered a different interest rate. Next, look out for things like early redemption fees. These may be payable if you want to overpay repayments or pay off your loan.
Arrangement Fees for Home Improvement Loans
Arrangement fees can also be applied by lenders, which can bump up the total cost you’ll pay back on the money you’ve borrowed. To make sure you don’t miss these important charges, our personal loans comparison table highlights important things through the ‘more info’ tab. If you want to check your eligibility, moneymatcher produces a table tailored to your requirements and uses a soft credit search to match you up with deals you’re more likely to be accepted for.
Is a Home Improvement Loan Right for Me?
You should always try to match your needs to the best form of borrowing for you. When it comes to making your home a top-notch place to live, you may be after items that can be purchased within the limit of a 0% credit card. If this is the case, be sure you can pay off your full balance before interest kicks in, and that you stick to spending on your home improvements only.
If your transformation plans involve going green, did you know that some providers now offer Green Deal Loans for things like new boilers, insulation or fitting solar panels?
Finding the right kind of credit for you can make a big difference when budgeting for something like an extension. It’s always best to do as much research as possible before taking on a large amount of debt.