Home improvement loans

SECURED LOANS: YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE, LOAN OR ANY OTHER DEBT SECURED ON IT. 

We compare loans that can be paid back over terms of between 1 and 25 years. The APR interest rate you’ll be charged depends on your personal circumstances, and will be between 3.2% and 99.9%

This is a representative example of what it may cost: a Loan of £7,500 over 60 months at 3.3% APR would equate to monthly repayments of £135.60, and the total cost of the loan that you pay back would be £8,136.22

What is a home improvement loan?

A home improvement loan can be used as an upfront payment for work you want to do to improve your home and hopefully increase its value. You might install a new kitchen or bathroom, or build an extension or loft conversion.

You then pay back the money you borrowed over a set period of time (the loan term). Home loans are the most common loan people aged 65-74 and 75+ search for, according to MoneySuperMarket data.

You can get a home improvement loan from a bank, a credit union, a private business or a lender.

The most common reasons consumers are looking to take out a loan, according to MoneySuperMarket data from January – October 2018.

How do home improvement loans work?

The amount of home improvement loan you’re allowed to borrow and the amount of interest you’ll have to repay on your loan will depend on questions like:

• Will the loan be unsecured or secured?
• How good is your credit rating?
• How much do you want to borrow?
• How quickly do you want to pay it back?

Unsecured home improvement loan

An unsecured home improvement loan is money you take out with the intention to use for home improvements, but you don’t take the loan out against your house.

This is known as a personal loan, because you’re taking it out for your own personal spending. This means that you have more flexibility around what you use the loan for.

And because the money you borrow won’t be taken out against your house, the lender doesn’t have an automatic claim against your home if you’re unable to repay.

Unsecured loans – what you need to bear in mind

You’ll most likely need to have a good credit score and borrowing history to get an unsecured home improvement loan. A lender needs to be sure that you’ll be able to pay the money back if they don’t have the guarantee of your home or another high value item.

They might not be prepared to loan you as much as a secured home improvement loan – which does have an extra level of security for a lender.

The interest you’re charged on your unsecured home improvement loan repayments can also change month to month (variable rate).

If you’re looking for a smaller amount of money at £10,000 or below then an unsecured loan can be a good idea.

Secured home improvement loan

A secured home improvement loan is where you take a loan out against your home if you’re a homeowner or you have a mortgage. This is known as a homeowner loan or a home equity loan. You borrow the money against the equity or value of your home.

If you’re then unable to pay back your loan then your lender can take the money you owe them from the equity you’ve built up on your house.

Because their lending is secured by the money you have in your property, secured lenders will often offer lower interest rates that are fixed at the same amount for the loan term and longer loan terms.

You might find that a lender is prepared to let you borrow a higher loan amount for a secured loan than with an unsecured loan. Some lenders offer £30,000 - £100,000, depending on your credit history and financial situation.

Choosing between secured and unsecured loans

Figuring out how much your home improvements are going to cost will help to give you a better idea of whether you’ll need an unsecured or secured home improvement loan.

45-64 year-olds are looking to take out the largest home improvement loan at £9,656, according to MoneySuperMarket data.

18-24 year-olds are looking to take out the smallest home improvement loan at £5,025.

45-64 year-olds search for the largest home improvement loan amount, according to MoneySuperMarket data from January – October 2018.

Why a home improvement loan might work for you

The benefits of a home improvement loan can include:

• Quick access to your loan money: your loan will usually be paid into your account within days of your application being approved – and sometimes even immediately. You can begin your home improvement work when you’re ready
• Fixed interest rates with a secured home improvement loan: your interest rate will be fixed with a secured home improvement loan, helping you to budget for your monthly repayments for the loan term
• Choose your loan term: you can choose how long you want to be paying your loan back to help fix your monthly repayments at an amount that works for you. Loan terms are available from 1- 5 years and longer
• Larger borrowing amounts: you might be able to borrow more money up front for a home improvement loan than with a credit card or mortgage increase. Just make sure you’d be able to afford the monthly repayments
• Use your loan for home improvement works and more: a lender may ask you what you want to use the loan for, but most of the time you will be able to use your personal home improvement loan for work around the house or for other spending

What are the disadvantages of a home improvement loan?

Things to be aware of when you’re thinking about taking out a home improvement loan include:

• High variable interest rates: on your monthly repayments for an unsecured personal loan
• Car or home repossession: if you aren’t able to keep up your repayments on a secured loan then your car or home may be repossessed by the lender. Your lender may be able to do this on an unsecured loan too but it is more difficult for them to do that
• Loan fees: you may have to pay an arrangement to get your home improvement loan or early repayment fees (redemption fees) if you want to pay off the balance quicker
• Difficulty getting a loan if you have bad credit or you’re self-employed: you might find it difficult to get approval for an unsecured home improvement loan if you have bad credit. This may also apply if you’re self-employed because you may not have the guarantee of fixed income to meet the monthly repayments. If you are approved, you may then find that you aren’t able to borrow as much as you wanted

The average income of consumers looking to take out a home improvement loan is £43,871.16, according to MoneySuperMarket data from January – October 2018.

Alternatives to a home improvement loan

If you aren’t looking to borrow a lot of money for your home improvement works, or you currently have a mortgage and you are able to borrow more then there are other options when it comes to paying for refurbishments.

Home improvement loan versus credit card

A credit card can be a better option for borrowing smaller amounts of money for your home improvements with lower interest rates than a personal loan. Credit cards can offer 0% interest rates for a set period of time on your larger purchases, which might include a new kitchen or bathroom suite. A credit card works best if you can pay it off quickly.

You will still need to go through affordability checks if you apply for a low interest credit card. You will need to be sure a lender is prepared to lend to you, how much they’ll lend you and the interest rate they’ll charge.

Home improvement loan versus savings

If you’re looking to borrow a smaller amount for your home improvements and you don’t have a strict deadline for starting the work then it can be a better idea to save for your home improvement costs.

This will mean that you avoid paying more money than you need to with the interest that would be charged on any monthly loan repayments.

Home improvement loan versus mortgage advance or further advance

You could approach your current mortgage provider to see if they will let you borrow more money on top of your current mortgage (a mortgage advance or further advance).

You can only do this if you haven’t already borrowed the maximum amount they’d be prepared to offer you (the maximum Loan to Value or LTV).

If you pass their affordability checks then your provider will most likely offer you the additional borrowing as a separate deal to your current mortgage deal.

This means you can end up with two different mortgage deals that are on different rates and end at different times, and you’ll be paying off more each month.

Your mortgage lender will most likely have restrictions on the minimum advance amount they’re prepared to lend you, and you may have to meet certain other borrowing criteria.

They will also need to carry out a new valuation of the property, which means you might have to pay valuation fees, solicitor fees and any other fees the lender might charge to set up a new deal.

Home improvement loan versus remortgaging

You could also choose to remortgage your existing mortgage or to borrow against your home by taking out a new mortgage deal with a different lender.

By doing this you could release some of the equity you’ve built up and borrow more if you can afford to – and your lender is prepared to let you. You might also find a better deal for the new mortgage.

If you do decide to remortgage then you will often have to pay an early repayment fee to get out of your current mortgage deal. You may also have to pay fees for your new mortgage arrangement, a new property valuation to agree on the property’s current value before any work and any legal fees.

Because you’re increasing your mortgage by taking out an advance or remortgaging, you’ll most likely be paying back the extra money you’ve borrowed over a longer term.

Even though the interest rates may be fixed at a lower rate than with a home improvement loan, you may find that you end up paying back more in the long run.

A mortgage provider will also want to know what you want to use the increased borrowing for, so you’ll need to have figured out how much the work will cost before applying.

Compare home improvement loans

Comparing home improvement loans can help you find the best loan for you. Our loans search tool asks you a few questions on how much you’d like to borrow for your home improvement loan and how long you’d like to be paying the loan back.

We’ll then ask you about your average income and employment status to show you both affordable loan choices and loans you’re more likely to be accepted for. We’ll also ask you whether or not you’re a home owner so we can show you both unsecured and secured home improvement loans.

You’ll then be able to sort your loan results by chance of approval to compare loan deals by rate, monthly cost and terms and conditions to find the best loan for you.

It’s important to remember that the loan rates you see will be based on a soft check and only show you loans you’re likely to be accepted for.

The loan amount, rate and duration you may then be offered if you are accepted when you apply through a provider can be different to the loans you saw because they’ll be based on your credit report and financial situation.

MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.