How can you compare home improvement loans? This new guide will discuss home improvement loans in fine detail and explain the easiest ways to compare your options before listing some options at the time of writing. 

Always do your own research and comparisons to find the most suitable and advantageous loans. Support and advice are also available from groups and commercial finance companies. 

What’s the best way to borrow money for home improvements?

There are lots of ways to borrow money to make home improvements, including:

  1. A home improvement loan
  2. A home equity loan
  3. Generic personal loans and credit cards
  4. Cash-out refinancing 

The best way will depend on what types of deals and interest rates are available to you, based on personal circumstances. A home improvement loan could be the most beneficial option. Learn more about these loans and how to compare home improvement loans in the UK, just below! 

What is a home improvement loan?

A home improvement loan is an umbrella term for different types of loans where the money must be used for home improvement projects. Examples of projects which may require a home improvement loan are getting a new kitchen or bathroom, a loft conversion, adding an extension or buying new furniture and white goods. 

Many families cannot afford these expenses outright and need to spread the cost with a loan. The loan amount will be provided as a lump sum into your bank account with repayments usually beginning the following month, including a principal repayment and interest on that amount. You’re usually able to borrow up to £25,000 depending on your finances and credit history. 

What home improvement loans are available?

There are two main types of home improvement loans, namely a home improvement unsecured personal loan and a home improvement secured loan. You can also find guarantor loans where repayments are secured by a guarantor and their assets, but these are not as common and usually standalone as generic guarantor loans. 

Home improvement secured loan

A secured home improvement loan will allow you to borrow money and use valuable assets as collateral within the loan agreement. What this means is if you do not pay what you agree to, the lender can seize your assets and sell them to recover the debt. It is a good way of reassuring the lender that you will repay and giving them an easy way of getting their money back. As a result, a secured loan of this kind could help you get a bigger loan with lower interest. 

Home improvement unsecured loan

Home improvement unsecured loans do not list any assets as collateral in the event you do not keep up with repayments. This means the lender does not have an automatic right to repossess your listed asset to sell and recover the money. But be warned, not paying can result in the lender taking legal action and a judge forcing you to pay. If you still avoid repaying they can use bailiffs to seize goods or even put a charging order on your home. 

How do I get a home improvement loan?

Home improvement loans are offered by online loan providers, banks and building societies. You can usually find information and apply online when using either of these three options. 

To get a home improvement loan you will need to meet the lender’s initial eligibility criteria, which usually involves being a homeowner of a certain age and a UK (tax) resident.

The lender will then need to assess your suitability for a home improvement loan, meaning can you realistically afford it and do you have a track record of paying back your debts on time and in full. To determine this, they will require information about your income, existing debts and will look at your credit file. 

If they are happy with the information, they will approve the loan and send the money to a designated account within days, sometimes within the same day if you bank with the same bank you took the loan from. 

What are the current home improvement loan rates?

At the time of writing, the lowest home improvement interest rates are just below 3%. This is what you can get if you have a good or excellent credit score and want to borrow a specific amount of money, usually between £7,500 and £15,000. 

This is based on market research – but things can change quickly! 

How long do home improvement personal loans last?

Home improvement loans come with varying repayment periods, depending on what the lender is willing to offer and the length of time you need. Most unsecured personal loans can be repaid over a period between one and five years in most cases. Securing a home loan with an asset may allow you to borrow more than the average, which may also mean getting longer than normal to repay. 

How to compare home improvement loans

To compare home improvement loans you can either look at each lender individually and keep notes on what is advertised, or use a home improvement loan comparison site. 

Using the latter option may be quicker and simpler, but it may miss out some lenders and cause you to consequently miss out on a more advantageous loan deal. 

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Compare home improvement loans UK

To give you an example of how to compare home loans in the UK yourself, and what details to take note of, here are two loans advertised at the time of writing and subject to change. You should always conduct your own research. 

NatWest Bank

NatWest is currently offering home improvement loans from £1,000 to £50,000 with repayment periods lasting as long as ten years for larger loans. Their lowest representative APR rate is 3.4% for loan amounts between £7,500 and £19,950.

The Post Office

The Post Office provides home improvement loans with a value from £1,000 to £25,000. They can be repaid over a loan term between one and seven years. The representative rate fluctuates depending on how much you borrow. Between £15,000 and £25,000, the representative rate is 2.9% but below this amount, it can increase up to 13.5%.

Our notes compare the two loans and the key details, making it easy for you to rule them out or add to a shortlist of potential options. For example, if you needed £30,000 for your home renovation you could consider NatWest and rule out the Post Office. However, if you wanted to borrow between £15,000 and £25,000, you could get a lower rate with the Post Office. 

Get help to compare home improvement loans 

Comparing home improvement loans can be daunting, especially if you’re not confident with maths or are still a little unsure. You can get help to compare home improvement loans, and some of this support is free!

Here are some examples of where to get help:

  1. Debt charities – although you may not be in debt, you are entering into debt by taking out a loan for home improvements. Some debt charities can help you compare options and they can assist you in budgeting for repayments accurately once the loan is approved. 
  2. Credit broker – a broker that will find you the most suitable and beneficial home improvement loans will simply outsource the task of comparing home loans. You may have to pay upfront or you may only need to pay for their service if you decide to apply for one of the loans they find. 
  3. Other financial service providers – many financial service companies can offer to help you find the most suitable loans based on personal circumstances. These work similar to how a mortgage advisor looks for mortgages for clients. They will come at a cost. Either upfront or after applying. 

Can you get a home improvement loan with poor credit?

People with a poor credit rating may still be able to get either an unsecured or secured home improvement loan. The latter will reduce how the person is viewed as a lending risk. However, those with a low credit score may not be able to access as much credit as those with a good or excellent score. And they may have to pay a higher rate of interest, usually above the representative example advertised by the lender. 

Do home improvement loans hurt your credit score?

Taking out a home improvement loan will not hurt your credit score in itself. It is how you manage your repayments that will either improve or harm your credit score

Taking out credit and sticking to repayments until it is paid off will show that you can manage your finances along with debt repayments and boost your rating, whereas not repaying as agreed can cause defaults to be recorded and make your rating go down. 

Applying for multiple home improvement loans in a short period can cause damage. When a lender receives an application and looks at your credit file they leave a record of their search. This is seen by other lenders and if there are lots of these searches within weeks it may indicate undisclosed money problems and cause your loan to be denied. 

Can a home improvement loan be added to a mortgage?

It is possible to add the money you want to borrow for home improvements into a mortgage at the time you apply for that mortgage. For example, if you needed a £100,000 mortgage to buy a property and a further £15,000 for home renovations, you could ask the mortgage provider to lend you £115,000 instead. Whether they agree will come down to a personal assessment. 

If you already have a mortgage, the only way you could add the money you need to borrow for home improvements into your mortgage would be to remortgage. This means going back to your current mortgage provider and asking for a new mortgage that covers the amount needed – or searching for the market for other mortgage providers who may do this. You may have to pay early repayment fees as a result. 

Alternatively, you could use your home equity to get a home equity loan, which is a separate secured loan that uses your home equity as collateral. Depending on how much home equity you have, you could access large amounts of credit with a competitive interest rate to complete big projects. But it also puts your home at risk if you do not repay. You could be forced to sell. 

Or then again, you could take out an unsecured or secured home improvement loan. The secured option may work similarly to a home equity loan if your home is used as collateral. 

Is a home improvement loan right for me?

A home improvement loan can be a smart choice in funding your renovations, but it won’t be the most appropriate or advantageous option for everyone. If these loans are right for you or not will hinge on personal circumstances and your preferences to risk. You may want to get support from a money advice group, charity or commercial service provider first. 

Only by fully understanding home improvement loans will you know if this credit option is right for you. We provide even more information about these loans in other new MoneyNerd guides. But even better, we’ve also got guides and articles discussing the other ways to finance home improvements, such as home equity loans.

Search our latest content now to smarten up on your options! 

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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