Home Improvement Loans Explained

When sprucing up our homes, we can also implement tactical home improvement additions in order to boost the value of the building itself. However, it can be a costly endeavour and finding savings to cover the expense isn’t always easy. So, what are the other options?

You don’t have to give up your home improvement plans just because your bank account isn’t thriving. If you are planning to make improvements to your home, you might want to consider a home improvement loan. But before setting a price on your dream home, take a moment to consider this key information from MoneyBright:

• What is a home improvement loan?
• Who might opt for a home improvement loan?
• How do home improvement loans work?
• How much can you borrow with a home improvement loan?
• Can I get a home improvement loan with bad credit?
• What are secured and unsecured home improvement loans?
• Advantages of a home improvement loan
• Disadvantages of a home improvement loan
• What should you consider when taking out a home improvement loan?
• How soon after buying a house can you get a home improvement loan?
• What are the alternatives to a home improvement loan?

What Is A Home Improvement Loan?

Home improvement loans are simply personal loans that an individual takes out from the bank. They are taken with the intent to use the money to make home improvements through things such as redecoration, renovation and demolition.

Many people use home improvement loans to increase the value of their home to make it more profitable when they go to sell it later down the line. However, others use it in place of selling their homes, by adapting their current home to their changing needs, avoiding the costly moving process.

Who Might Opt For A Home Improvement Loan?

People who decide to take out home improvement loans are usually individuals who have made plans to make changes to their property and have spotted a need for a bigger budget.

This can include first-time buyers, landlords and retired individuals, and anyone who is not physically capable of moving home but need to adapt it to their needs. Other people who may take out a home improvement loan are those who are planning on selling their home but need to boost the value before selling it.

How Do Home Improvement Loans Work?

Home improvement loans are usually obtained through an application to a bank, private lender or credit union. Once the application is approved, the money will be released and put into the bank account and immediately accessible.

From here, the repayment process will begin and most home improvement loans in the UK require monthly instalments to pay back the cost. Alongside the cost is the interest rate, which will fluctuate depending on the size of the loan, how long the repayment plan is and if it’s an unsecured or secured home improvement loan.

Once you’ve taken out the loan, you’ll have to pay it back over time, usually in monthly instalments. You’ll pay back the cost of the loan, plus the interest rate.

How Much Can You Borrow With A Home Improvement Loan?

Home improvement loan amounts depend on the type of loan you take out. Unsecured home improvement loans allow lenders to hand out up to £25,000.

However, if your renovation and home improvement costs are likely to go past this point, you will need a secured loan. Secured loans allow people to borrow a much larger amount of money, sometimes hundreds of thousands of pounds.

Can I Get A Home Improvement Loan With Bad Credit?

Bad credit and a rocky credit history will put you in a bit of a difficult situation if you begin to start applying home improvement loans in the UK. In fact, anyone with a bad credit history will find it more difficult to get credit compared to those with a good credit history.

Poor credit indicates a potential risk to the lender of you not returning the money in full, so the higher the risk, the less likely they’ll take the chance on you.

This doesn’t mean you won’t be able to get a home improvement loan, but the repayment costs and the interest rate may be significantly higher as a result.

What Are Secured and Unsecured Home Improvement Loans?

Secured home improvement loans are loans that are secured against an asset that the borrower owns. This can be a high-value item such as a car or property and the lender will be able to recover the value of the loan through this asset if repayments are continuously missed.

Unsecured loans are the opposite of secured loans and are an amount of money that isn’t secured against an asset. The lender still has a safety line to hang onto though in the event it’s not paid off, as fines and credit rating damage are handed out to those who missed repayments.

Advantages Of A Home Improvement Loan

Home improvement loans allow you to make the changes to your home without having to save up beforehand, opening up the opportunity to more people.

On top of this, secure loans mean lower interest rates and better deals on the amount being borrowed. Flexibility on repayment plans and general lengths of the loan term are also benefits that are worth taking advantage of.

The restriction on the cash is limited too, as once you receive the money it’s up to you how to spend it.

Disadvantages Of A Home Improvement Loan

A home improvement loan is still a debt that you must budget around and focus on repaying. As a result, there can be expensive repayment expectations and high-interest rates if you didn’t get a good deal on the loan.

If you do miss a repayment, you are putting your home at risk and any other assets that are on the secured loan. Alongside this, your credit rating is also at risk of being severely damaged.

Lisa Best, of Propertyable, adds, “Home improvement loans can help you make those improvements you want, but the main thing is to fully understand the implications. Home improvement loans come with added interest so you will always pay back more than you borrow. Before commuting, ask yourself if you really need to make the improvements, if you can afford the repayments and if there is any other way of doing the work for less money, for example releasing equity or using an interest-free credit card.”

What Should You Consider When Taking Out A Home Improvement Loan?

When you begin the process of applying for a home improvement loan, you must be sure it is the right decision before you go ahead. Having a clear plan of the renovations you want to make with a detailed budget that factors in repayments is the best start.

You should also only borrow the amount you actually need to complete any home improvements, as a larger loan may be tempting but harder to pay off. You should also consider your credit score and income, as the lender will also take this into account when deciding on the type of loan you will be offered, and the amount.

How Soon After Buying A House Can You Get A Home Improvement Loan?

After buying a house there are limitations on the type of home improvement loan you can get. If you haven’t built up much equity in the home yet, the secured loan option may not be open to you as there is not enough collateral on the home yet.

However, if it’s an unsecured loan you’d like, you can apply for a home improvement loan whenever you need one, as long as your credit score allows it.

What Are The Alternatives To A Home Improvement Loan?

There are other options for a home improvement loan that you can opt for. If you have any savings, you can use those instead and avoid any repayment charges or worries about credit scores.

However, if you don’t have much saved up and you’re ready to make some changes around the house, you could try a credit card. Try to find one that has a 0% interest rate and pay it off as soon as possible to avoid running out of interest-free time. But, before taking out any credit cards, be sure to speak to a professional for impartial advice.

Alternatively, you could re-mortgage your house to borrow more money from your new or current lender that can then be put towards home improvement costs. This isn’t always a smooth process though and you could face longer repayment terms and higher interest rates on your mortgage as a result.

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