Many people choose to take out loans for their home improvements, for a variety of reasons. In this article, Robbie Fowle from H&T offers his advice for picking the right one for your project.
Perhaps you want to improve the quality of your living space, or you’re looking to increase your property’s value so you can sell your house. Whatever the reason you’re looking into home improvements, a loan can help cover the costs of your renovations or extensions, which can add up in no time if you don’t plan your improvements properly beforehand.
With so many loans and providers out there, searching for the right one for your home improvement needs can feel overwhelming. That’s why I’ve put together this guide to researching and selecting the right loan for you and the needs of your project.
Understand what kind of loan options you have
Home improvement loans are usually unsecured personal loans. Some providers will offer home improvement loans by name, but any unsecured personal loan can be used to pay for home improvements. When you take out a generic personal loan, the provider will ask you what it’s for, so you’ll have a chance to explain you’ll be using it to make renovations or add an extension to your home.
These are ideal for projects that cost under £25,000. You don’t need to offer up any assets as collateral to receive the loan, but they often have higher interest rates as a result.
Secured loans will allow you to borrow more, but they will be secured against your home. So, it’s important to carefully consider exactly how much you need to borrow and whether you can pay it back.
Find out how much you can borrow and how long for
Different loans will have different terms, so make sure you read up on them or use a comparison site before choosing.
Some lenders may give you longer to pay back than others, and they might allow you to borrow beyond the maximum limit. If you depend on a monthly income, longer repayments are better option so that you can spread the cost, but you will inevitably end up paying more in interest the longer it takes you to repay. If you have savings, you might prefer shorter terms to save having to pay more overall. Look for providers that will allow you to customise your payback period to help you find the right balance for your budget.
Some providers may base your interest rate on your credit score. If you have poor credit rating, borrow from places that take your personal circumstances instead, you may get a better deal.
Set a budget and stick to it
Whether you decide to fund your home improvements yourself or take out a loan, it’s vital you keep on top of your finances and ensure you have enough money set aside to cover the costs. Falling behind on loan repayments can result in penalties and it can affect your credit score, which can make it harder to take out another loan in future. If you fail to make the repayments back in full, you can even face legal action.
If you are having your loft converted or an extension built, make sure you discuss your budget and loan type with the architect and building company. Most importantly, be realistic about what you can afford. Err on the side of caution by rounding up or over-estimating the total cost, and you’ll have some security in case you do go over budget.
If you’re looking to improve your home with a renovation, conversion or extension, the tips in this guide can help you find the right loan for your needs. Before taking out your loan, always seek the advice of a personal financial advisor first.