Home improvement loans explained
Wanting to improve your home is a natural thing for most homeowners, especially if the house you’ve moved into needs renovating or if you’ve been in a property for a while and it needs a bit of a refresh.
Borrowing on your mortgage for home improvements is a popular method when it comes to home renovation and improvements, but there are also a few other options you might want to consider as well.
In our guide to home renovation loans, we explain how to borrow money for home improvements, plus we also answer questions such as should you remortgage for home improvements and should you get a personal loan if you want to make improvements to your home?
What is a home improvement loan and how does it work?
A home improvement loan is exactly what it says in its name; it’s a loan that you can take out to improve your home through renovations.
If you’re just planning to redecorate your home, then you might want to consider taking out a personal loan to cover the costs if you can’t afford to pay for things upfront.
However, if you’re planning to carry out larger home improvements such as putting an extension on your home, then a secured home improvement loan may be the more suitable option.
Home improvement loans work just like many other types of loans; you make the application once you’ve researched and compared different providers and if you are accepted, the money will go straight into your bank account and you will have to pay it back over an agreed-upon amount of time.
You will have to pay back the cost of the loan, plus added interest which will be calculated based on how quickly you want to pay the loan back, how much money you want to borrow and whether it’s a secured or unsecured home improvement loan.
What is the best type of loan for home improvements?
There are several types of loans that can be used for home improvements, including an unsecured personal loan, secured loans and guarantor loans. The type of loan that you choose will depend on your financial situation and what exactly you plan to use the loan for.
With a personal loan, you can borrow lower amounts of money, sometimes as little as £1,000, so if you just want to make small improvements to your home, this might be the best option for you. You also don’t have to put your home up as collateral against the loan, so it’s less of a risk.
However, interest rates on small personal loans can often be pretty high and you’ll likely need a good credit score to be considered for this type of home improvement loan.
A secured loan for home improvements allows you to borrow much larger amounts, often as much as £100,000, so if you need a lot of money to carry out your home improvements, this might be the better option for you. Secured loans are also often easier to obtain for people with poorer credit scores, so you may want to choose this option if your credit score isn’t in the best shape.
The downsides to taking out a secured loan for home improvements is that if you fail to keep up with the repayments, you risk losing your home as it is secured against your property. The amount of money you can borrow is also sometimes limited by how much your home is worth and how much of it you own.
Reasons for getting a home improvement loan
There are many reasons why you might want to take out a home improvement loan, such as:
- To pay for urgent repairs or replacements in your home, for example, if there is a leak in your roof or to replace your windows or central heating system.
- To increase the value of your home before you put it on the market to sell it; this can help you to achieve more money for your home when you sell it.
- To replace your current kitchen or bathroom with a more modern one, either for convenience purposes or aesthetic reasons.
- If you need more living space, such as a bigger kitchen, living room or to add another bedroom to your home in the form of an extension if your family is growing.
Do I need good credit to borrow money for house renovations?
The exact credit score that you need to borrow money for house renovations varies depending on different loan providers. Other factors such as your overall credit history and how much money you plan on borrowing will also influence your eligibility to get a home renovation loan.
However, it’s fair to say that the better your credit score, the more likely you’ll be accepted for a loan and the better deal you’ll get with regards to interest rates.
You might like: What credit score do I need for a loan?
How much money can you borrow with a home improvement loan?
The amount of money that you can borrow with a home improvement loan depends on several factors:
- The amount of equity you have in your home
- The type of loan you want to take out - secured or unsecured?
- The state of your credit history and how good your credit score is
- The amount of work required to be carried out on your home
- The materials and their costs that are required to carry out the work
Typically, younger homeowners take out a lower amount when it comes to home improvement loans, usually around £4,000, whereas older borrowers aged between 44-64 often borrow much more at around £9,000.
Home improvement loan eligibility
Your home improvement loan eligibility also depends on numerous factors, including the type of loan you want to take out, how much you can afford to borrow and repay (you will need to provide proof of your income and outgoings), as well as how good your credit score is and whether the lender thinks you’ll be able to make the repayments along with the added interest.
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