Comparing and choosing the right home improvement loan for your needs can be tricky – it's best to decide exactly what the loan will be used for, how quickly you want to repay it and how much interest you will incur doing so. Then compare the best home improvement loans available.
When it comes to financing home improvements, consumers should assess the pros and cons of taking out a secured or unsecured loan, to make sure they’re getting the best deal.
Secured loans are loans secured against your property, which means that the bank or building society providing the loan can, in the worst case, repossess your home if you fail to meet the repayments schedule.
Unsecured or personal loans depend far more on your personal circumstances, but offer a narrower time frame for repayments and, usually, smaller sums of money.
When you're thinking about the best secured home improvement loans available to finance your home, your criteria is likely to be:
how much you need to borrow
how much you can afford
how long you need the loan for
how to find the best interest rate for a home improvement loan
A secured home improvement loan is a loan to help with renovations, which is based on how much of the property you already own. The amount of your own money you have in your house is known as equity - as opposed to the mortgage debt that you owe.
Interest rates on secured loans can depend on the value of your equity, or simply the value of any outstanding mortgage you have subtracted from the property’s value.
So if you have a mortgage that is equivalent to 75 percent of the value of your house, you will most likely pay a lower rate of interest than if you have a mortgage worth 90 percent of your house. This is because the loan company will regard you as lower risk.
Calculating your equity can be simple: for example, if your outstanding mortgage is £150,000 and your property value is £175,000, then your equity is worth £25,000.
The interest rate can also be affected by the length of the secured loan’s term, which is essentially the time period to make your debt repayments, as agreed with the loan provider.
Secured loan plans generally provide homeowners with longer terms than an unsecured loan policy might. This can allow you, for example, to repay the debt over 15 to 20 years, as opposed to five or 10.
Another factor that could impact the amount of interest you repay is the size of the secured loan. Some banks and building societies offer secured loans of up to £200,000, so property owners with major home improvements in mind tend to opt for a secured loan rather than an unsecured loan. However, this also depends on other circumstances.
It's also important to note that secured loans are only offered to those still paying off their mortgage. So if you own your property outright, then you may wish to consider applying for a mortgage or first charge loan.
The one drawback of a secured loan is that you will be adding to the existing debt on your house. If you can’t keep up with interest repayments then your home might be at risk. Where you have bad credit you might also find it difficult to secure a loan on your property. However, there's help for people with bad credit and you can find more about bad credit loans here.
Your credit score may also be a factor, but it’s less likely to be as much of a concern as it's with an unsecured loan. This is because your property is used to leverage the loan, meaning the provider can repossess your home if you fail to meet the repayment deadlines.
Uswitch covers 90 percent of the secured loan market, so you can compare the different types of secured home improvement loans.
Unlike a secured loan, the amount of money and length of term offered with an unsecured loan is far smaller, but there are some advantages to consider. Firstly, an unsecured loan doesn't put your home at risk, although that doesn't mean the loan provider will not take serious measures against you if you fail to meet repayment deadlines.
Secondly, the time it takes to process the application for an unsecured loan is usually shorter than with a secured loan, meaning you could have the money for your home improvement within days rather than weeks.
If you're looking to make small improvements or take on a reasonably manageable project in the home, then unsecured loans, which can provide funds up to £25,000 could be more suitable.
You can find out more about personal loans and compare many of the deals available here.
However, interest rates tend to be higher with unsecured loans, as it focuses more on the personal circumstances of the homeowner. A secured loan can be easier to successfully apply for if you suffer from bad credit or have had past problems, but using your property to secure a loan is a serious decision to make. So it's important to think about whether you can keep up with repayments, to avoid having your home repossessed.
Also, you won’t be able to borrow very large amounts of money via an unsecured loan. If you're redecorating a room or altering a bathroom, then this might not be a problem.
However, if you wanted to carry out large or significant improvements, such as re-roofing your house, converting an attic or adding an extension, you would probably need to apply for a secured loan.
If you're looking to use a home improvement loan to increase the value of your home you will need to do your research carefully. This will involve looking at similar properties in your area and considering the general trends in house prices.
You will also need to assess how much value your home improvement could add. Decide whether the cost, as well as the potential mess and chaos in your home for a period of time would be worth the value it would add in the long run.
For instance, paying £10,000 for a new modern kitchen would replace old surfaces and fixtures, as well as worn out appliances. You would not only be set back £10,000, but also have the cost of interest you'll have to pay to the loan provider.
Your kitchen is also likely to be out of use for up to a month. So if you're doing it to increase the value of your home, how much would a new kitchen add?
In reality, it may only add £10,000, but it depends on other factors. Your home may be in a desirable location and the property prices in your area might be consistently rising, but the only thing holding back your home was a poorly functioning and unattractive kitchen.
In such a case, the home improvement loan could help you to add significant value to your home. With more bold home improvements, such as an extension or loft conversion, the amount of value added is unlikely to be significantly higher than what it cost you to have it done in the first place.
Ultimately, increasing the value of your home with a home improvement loan comes down to your property's circumstances, the property market and how much of an improvement you can make to the aesthetics and functionality of your home.
Borrowing money to improve your property can help you make a real difference to where you live.
There are a few things to think about before you go ahead. Firstly, be sure you can afford the repayments. Work out how much disposable income you have, and whether you will be able to continue making payments on your home improvement for the entire length of the term.
If you're taking on a large debt, or one that you would struggle to repay if you lost your job, then you could consider taking out an insurance policy to protect you.
An income protection policy could help cover your outgoings if you're unable to work due to sickness, an accident or were made redundant. You can find out more about your options and compare deals with our Guide to income protection policies.
If you have had bad credit in the past it might be more difficult to secure the best home improvement loans. However, there are some specialist lenders who may be able to help you.