Guide to home improvement loans
Key points:
- A personal loan can fund projects up to around £25,000 Secured loans are an option and can raise larger sums, but missing payments puts your home at risk
- A credit card or overdraft facility might be cheaper for smaller projects.
- Home improvements are a great way to add value to your property while sprucing up your surroundings, whether you need a new kitchen, bathroom or you're adding an extra room to your home.
But most homeowners don't have a whole lot of spare cash lying around and, despite their long-term advantages, home improvements can require a large initial spend.
So, what are your options when looking for ways to fund building work, and could a home improvement loan be one?
Like other types of loans, a home improvement loan comes in two main guises; secured or unsecured.
Personal loans for home improvements
An unsecured loan is a personal loan which allows you to borrow money over a number of years, normally at a fixed rate of interest, usually up to £25,000.
The rate you pay will depend on your personal circumstances, the amount you want to borrow and the length of time you want to pay the loan back over.
Beware low advertised rates - by law these only need to be given to 51% of successful applicants. Therefore, 49% of successful applicants are likely to be offered a more expensive rate.
Loans secured against your home
If you want to borrow a larger amount, you may need to look to a secured loan.
If you're planning extensive renovations and are thinking of moving out while the work is in progress, you need to be aware of your insurer's rules.
Secured loans can allow you to borrow larger amounts and may give a more competitive interest rate, as your home guarantees repayments to the lender.
There is, of course, one major catch - a secured loan usually uses your home as security, so be aware that your home would be at risk if you fail to make repayments.
Also, as with unsecured personal loans, the advertised APR only needs to be offered to 51% of accepted applicants.