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How Do Home Improvement Loans Work?
A home improvement loan is a loan that can be taken out and used to pay for improvements around the home.
Home improvement loans can be secured loans, that lend you the money tied up in your property, or they can be unsecured loans, where the money is leant to you based only upon your personal credit history and how much you can afford to repay.
Secured homeowner loans can allow you to borrow larger sums of money, and tend to be a more affordable option as repayments can be spread over a much longer loan term.
Secured homeowner loans use the equity in your property to determine how much you can borrow, as well as how much you can afford to repay each month. The equity in your property is the 'available' money you already own.
Equity can be worked out by taking your property's current market value and then subtracting any outstanding mortgage or other loan secured on it.
Unsecured homeowner loans generally require you to have a good credit history as the loan lender has no collateral for the money they are lending to you.
Unsecured loans are available up to £25,000. However, repayment periods are much shorter than secured loans, with a maximum of up to 10 years, so monthly repayment amounts can be higher.
What can a home improvement loan be used for?
Home improvement loans can be used for pretty much any home improvement you'd like to make.
- Increasing the value of your property
If you are spending a lot of money on doing up your house, it's a good idea to make sure you're adding value to your property so that you can get something back from your investment.
The top ten home improvements for really adding value to your property include a new kitchen, a new bathroom, adding a conservatory, double-glazing, central heating, garage and parking space and loft conversions.
The home improvements that will most increase the value of your property include loft conversions and adding extra living space, as well as building a garage, a conservatory and putting in a new kitchen.
- Increasing your quality of living
Home improvements can also improve your quality of living too. With a nice comfy lounge to relax in on an evening or a dream kitchen for cooking your Sunday roasts.
How much can I borrow with a home improvement loan?
- Secured home improvement loans
Secured home improvement loans are available from around £3,000 right up to a whooping £250,000.
However, the actual amount of money you can borrow for home improvements will depend upon the available money you have tied up in your property.
Secured loans basically lend you the money you already own in your property. The amount of money you do own in your property, excluding your mortgage or any other secured loans is called equity.
The amount of equity you have can be worked out by taking your property's current market value and then subtracting away your outstanding mortgage and any other loan secured on your house.
It's also important to know how much you can afford to repay each month, as this will be taken into account by the lender when deciding upon how much you can borrow.
What if I have little or no equity? There are secured home improvement loans available that will lend you up to 125% of your property's total value.
These types of loans can be useful if you have little or no equity in your property as they allow you to borrow a little extra.
- Unsecured home improvement loans
Unsecured home improvement loans are available from £1,000 to £25,000.
The amount of money you could borrow with an unsecured loan for home improvements will be based upon how much you can afford to repay each month, as well as your financial / employment situation and credit history.
How do I get a home improvement loan?
- What if I have a poor credit history?
If you know yourself to have a poor credit history you may still be able to get a home improvement loan.
Many secured loan lenders will consider people with a poor credit history due a range of financial difficulties or problems including County Court Judgements for non-payment of debt, mortgage arrears or defaults, and having late or missed credit payments.
If you do have a poor credit history, look for lenders in our home improvement loan comparison table who are able to help people with a bad credit rating.
- Compare loans
Before deciding on which home improvement loan to apply for, you should compare at least 3 different home improvement loans.
When comparing home improvement loans you should be asking questions such as:
- "Can the loan be used for home improvement purposes?"
- "How much will this lender allow me to borrow?"
- "How long can I spread my repayments over?"
- "What is the interest rate I will be charged for the loan?"
- "Does the lender require my property to be used as collateral on the loan?"
Compare home improvement loans here.
- Apply online
Once you have chosen a home improvement loan, you can often apply online to borrow money you need.
Online applications are quick and easy to fill out, and any forms asking for financial information should be securely encrypted, which means no one but the loan lender will be able to access your information.
Once you've submitted your online application the home improvement loan lender will get in touch with you as soon as possible to let you know their decision.
- Getting the money
When you have been accepted for a home improvement loan you will be given a personalised quotation and contract.
If you are taking out a secured home improvement loan you may have a valuation of your property during the application process so that the lender can establish how much your property is worth to find out exactly how much equity is available in your home.
Most lenders will cover the cost of this valuation, however you may want to ask the lender to find out who pays it, and also any other fees or charges involved in setting up your loan.
If you decide that everything in the contract looks ship shape you simply need to sign and return the contract along with any requested documents - such as proof of address, proof of ID, pay slips and bank statements.
Once the home improvement loan lender has received back your signed contract and requested documents, your home improvement loan will be transferred to your nominated bank or building society account where you can access your finance.
Once the money has been debited to your account, the loan term will begin, and your monthly repayments will start on the date agreed with your loan lender.
Remember, spend wisely and don't forget your repayments!
Compare home improvement loans
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