What is a home improvement loan?
A home improvement loan could help you fund upgrades or repairs to your home. Whether secured against your property in the form of a second-charge mortgage, or taken as an unsecured personal loan, home improvement loans allow you to borrow money for projects like renovating your kitchen, adding an extension, or making essential repairs. They usually come with flexible terms and competitive interest rates, making it easier to manage the costs of your renovations project.
What canhome improvement loans be used for?
Before making your decision, consider exploring the various reasons for a loan:
Renovations
From a new kitchen to bathroom remodelling, a home improvement loan could fund all types and size of renovation.
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Cover the cost of crucial home repairs like roof replacements or plumbing fixes.
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Invest in energy-saving and sustainability upgrades such as new windows or solar panels.
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Increase your living space with a new room, a side or rear extension, or an extra floor.
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Boost your home’s visual appeal with landscaping, a balcony, pointing and paintwork, or other exterior enhancements.
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Handle unexpected repairs promptly with quick access to funds in as little as 14 days.
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Interest Rate vs APR
When you search for a loan online or compare rates with our home improvement loan calculator, you'll find lenders providing both an interest rate and an APR (Annual Percentage Rate). Let's see how they compare:
Interest Rate
The interest rate is the cost of borrowing the loan amount, paid back as a percentage of the loan each month. Several factors affect the interest rate on your loan, including the bank of England base rate and your own credit history. Loans for bad credit usually carry higher interest rates, while rates for secured lending tend to be lower than average.
APR (Annual Percentage Rate)
APR is the interest you'll pay on the loan plus additional fees charged set by the lender. APR is therefore usually the higher - and more accurate - amount. Typical APR on home improvement loans is currently around 6.2% - 6.7% (correct as of Tuesday 30th July, 2024). When a lender says APR is "representative", it means at least 51% of people receive this rate or lower.
Home improvement loans pros and cons
Advantages of a home improvement loan
- Fast access to funds: A home improvement loan offers quick access to funds to get your project moving and fast-track your renovation without needing to save up in advance.
- Simple budgeting: With a home improvement loan, you can merge your project costs with your other monthly outgoings, making your bills and expenses easier to manage.
- Wide range of uses: In most cases, lenders don't need to know which renovations you wish to make, which allows for flexibility over your spending as your project evolves.
- Flexible terms: You can choose loan amounts and terms to suit you, with repayment periods that typically range from 3 to 30 years.
- Increase home value: A home improvement loan can transform a living space for you and your family and may also add value to your home.
Disadvantages of a home improvement loan
- Interest costs: As with any loan you'll typically pay interest to the lender, which means you'll pay back more money than you borrowed, and the longer you stretch the loan term the more in total interest you'll pay back.
- Risk to your home: If you take a secured home improvement loan and then fail to keep up with repayments, the lender can force the sale your home to reclaim the outstanding loan amount.
- Over-borrowing: Just because you're offered a high loan amount, that doesn't mean the repayments will always be manageable, especially over the long term.
- Lower returns: Not all home improvements add value to your home and the changes you make could reduce the value to your home more than you were expecting.
- Spiralling costs: Building and renovation costs can be difficult to predict, and you may end up spending more of your loan than intended before your project is complete.
Is a home improvement loan right for me?
Taking a home improvement loan is an exciting moment for any homeowner but it's a big step when the loan is secured against your home. Interest adds significant cost over time and building work can easily run over budget, so it pays to think carefully about your renovations before you start. Use our home improvement loan calculator, compare the whole market and make a plan for your repayments. You may find that saving up for your project in advance is the better option for you.
What to consider before you apply
1. Your Eligibility
To be eligible for a home improvement loan, second charge lenders typically require you to be a UK resident who is a homeowner with an existing mortgage. Most will also require that you have a good credit score and a regular income of at least £10,000 a year. Students, and homeowners with a history of CCJs or bankruptcy, will usually not qualify, although there are specialist lenders than may consider your application.
2. Your Credit Score
One of the main reasons homeowners fail to qualify for a home improvement loan is a poor credit score. You can improve your score by making sure your bills are paid on time and reducing any debts. It can also pay to address errors on your credit file, such as old accounts that remain active, missing information, or bills that still show as unpaid.
3. Interest Rates
Where possible, you should look for a home improvement loan with a low interest rate. Sometimes, a slight adjustment in the amount you wish to borrow can change the lender's rate, so make sure to try a range of options until you find the rate you're happy with.
A fixed interest rate means your payments won't change throughout the loan term, while a variable rate can change with the economy and the Bank of England's base rate. If you have a good credit score, lenders are more likely to keep your interest rates low.
4. Repayment Options
Lenders offer a range of repayment options when you calculate your loan. The more time you wish to spend paying back your loan, the lower your monthly repayments are likely to be, but the more you'll pay in total interest over time.
If you're looking to save interest by repay your loan sooner, you can sometimes make larger over payments at no extra charge. Most lenders will also give you the option to settle your loan early, but they'll usually ask for a fee or a early repayment charge to do so.
5. Home Value
If you can add a new room, extra floor or extension, you could well increase the asking price of your home. Energy-saving additions like roof insulation, draft-proofing or new appliances are always attractive to energy-conscious buyers.
But not every home improvement project adds value. Extensions can be expensive and may not "pay for themselves" if the resale market is slow. On the other hand, lower-cost improvements like redecorating or exterior paintwork can change the overall impression of your property and offer more value for money.
6. Any Alternatives?
There are several other ways to fund your home improvements project. You might consider using a 0% interest purchase credit card, an interest-free overdraft, a home equity line of credit (HELOC), or a debt consolidation loan.
You could also remortgage your home, which involves increasing your mortgage amount, paying off the original mortgage and using the additional funds to make your renovations. Keep in mind that unless your increase the term of your mortgage, your monthly payments will go up to cover the cost of the additional borrowing.
How to Apply for a Home Improvement Loan
Our expert says:
‘’The right home improvement loan could help fund your renovation project, transforming your living space. It's crucial to compare different financing options and consider both the short-term and long-term costs. Money Saving Advisors aims to simplify this process, by getting your approval in 60 minutes and funds in your bank account in as little as 14 days.”
Frequently Asked Questions
What is The Best Way to Finance Home Improvements?
The best way depends on your financial situation and the scope of your project. Home improvement loans are a popular option, but many use homeowner loans, a personal loan or personal savings to fund their project.
Can I Get a Home Improvement Loan With Bad Credit?
Maybe - some lenders offer home improvement loans for people with less-than-perfect credit, but you may face higher interest rates. Securing the loan against the equity in your home is one way to obtain a loan with poor credit.
How Much Can I Borrow For Home Improvements?
The amount you can borrow depends on the type of loan, your credit score, and your income. Some lenders set a limit of £50,000, while others offer secured loans of £100,000 or more.
How Long Does It Take to Get a Home Improvement Loan?
Approval times vary by lender, but our loan calculator offers a quick and convenient way to assess multiple home improvement loans side-by-side, fast-tracking the process and saving you time.
Can I Increase my Mortgage to Pay For Renovations?
Many lenders offer further borrowing on top of your mortgage for home improvements. Depending on the size of your remaining mortgage, it can be cheaper to remortgage than to obtain a home improvements loan in the form of a secured loan.
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