A home improvement loan could help you finance a loft conversion, get a dreamy new bathroom, or even complete a home extension. We’ve discussed all the key details about these loans in this guide. Read on to learn everything you need to know about home improvement loans and some alternative options.

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

There are lots of ways to access credit to complete home improvements. One of the most popular methods is to get a home improvement loan, which is a type of personal loan used exclusively to complete home renovations and decoration projects.

Some of the methods of accessing credit for this purpose are:

  1. Remortgaging and refinancing 
  2. Reverse mortgages (for seniors)
  3. Home equity loans
  4. Using a credit card
  5. Using a personal loan
  6. Government grants 
  7. Savings

You should explore all your options before you apply for a home renovation loan. You can get support comparing these options with a money advice group or even a debt charity. 

What is a home improvement loan?

A home improvement loan is a type of loan specifically used to pay for home improvements, such as redecorating, a new kitchen or even building work. The lender will agree to lend you a certain amount to cover the costs of your home improvements and the money may not be used for other purposes. You should only apply for a home improvement loan from a lender that is authorised and regulated by the Financial Conduct Authority. 

A home improvement loan should not be confused with a home equity loan that can also be used for home improvements. We compare both of these borrowing options later in this guide. 

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How does a home improvement loan work?

A home improvement loan works similar to any other personal loan. Different loan amounts are available and are advertised with various representative APR rates. The interest rate you’re offered may be lower or higher than the APR representative advertised. This is just the interest rate that at least 51% of successful applicants were offered. You’ll need to research your options and then apply for a loan that meets your needs to get a personalised quote.

The lender will either reject or approve your application based on your personal financial circumstances and your credit score. If approved, you’ll receive the full amount to pay for your home improvements and will be required to start making monthly loan repayments over a fixed period of time (e.g. 60 months) until the full loan amount is repaid. You might be able to repay in full earlier, but you could be subject to an early repayment fee. 

Taking out a loan is a big deal and you should fully understand its terms before agreeing. 

What qualifies for a home improvement loan?

Any type of project designed to improve your home’ structure or appearance will qualify for one of these loans. If the project will increase the value of your home then it is likely to qualify for a home improvement loan. From a loft conversion to a new garage door, there are so many reasons people want to borrow for home improvements. 

The different types of home improvement loan

There are two types of home improvement loans. You can find them as unsecured personal loans or sometimes as a secured personal loan.

Unsecured home improvement loan

Unsecured home improvement loans do not list any assets as collateral in case you do not repay. This means your assets, such as a car or a home are not at immediate risk if you do not keep up with your monthly repayment. However, as a result the maximum APR you could be offered can be higher. 

Secured home improvement loan

A secured home improvement loan will list an asset as collateral within the credit agreement, such as a car or even a property. This means you could be forced to sell the asset or have it repossessed if you miss monthly repayments in full. The benefit is that these loans usually have a lower APR representative.

Pros and cons of home improvement loans

A home improvement loan could help you complete the home improvements you’ve been dreaming of, but they might not be the best option for everyone. Here is a list of the pros and cons of home improvement loans:

The pros:

  1. You may be able to borrow more money than generic personal loans (secured type)
  2. You may be able to borrow with a lower interest (secured type)
  3. You can apply online easily (secured and unsecured)
  4. They can help you increase the value of your home, and thus, increase home equity (secured and unsecured)
  5. There are scores of lenders that are regulated by the Financial Conduct Authority offering these products (secured and unsecured)

The Cons:

  1. You could lose your home (predominantly secured type)
  2. Availability is subject to status and your credit rating (secured and unsecured)
  3. Missing repayments will damage your credit score (secured and unsecured)

Where can you find a home loan?

Home renovation loans are widely available through high-street banks, building societies, and online lenders. It’s important to search all options before applying so you don’t miss out on a better deal with lower monthly repayments or improved terms. 

Applications can be completed quickly and you may even be approved within the same working day. If you apply to your everyday bank and are accepted, they might even put the money into your current account the same day. 

How soon after buying a house can I get a home improvement loan?

How quickly you can get a home improvement loan after buying a house will depend on the type of home improvement loan you’re applying for. If you’re applying for an unsecured loan, you could apply as early as you like, subject to status and your credit score. 

But if you’re applying for a secured home improvement loan using your home equity (current property value minus existing mortgage amount) as collateral, you’ll need to have built up enough equity first. The length of time this will take will depend on personal circumstances.  

What is a good credit score for a home improvement loan?

Credit reference agency, Experian, suggests that you will need at least a mid-600s credit score to be approved for most home renovation loans. However, this is just one factor that will be considered in your application and each case is different. If you’re using a secured loan, you might get away with a lesser score because the lender has added security of the asset listed within the agreement. Unfortunately, there’s never a one-size-fits-all approach. 

Can I get a home improvement loan with bad credit?

Anyone with a bad credit history will find it more difficult to get credit compared to those with a good credit history. If you have poor credit then the information and interest rates on a loan calculator may not be relevant to you as these are based on the average. You may still be able to get a loan, but the APR (Annual Percentage Rate) you have to pay may be considerably higher. 

Applying for loans can leave a small mark on your file and too many of these in a short period can reduce your chances of being accepted. It may be worth looking for lenders that give an initial personalised quote and don’t check your credit file first.

Home improvement loans vs home equity loans

An unsecured home improvement loan is not the same as a home equity loan. Although the latter is commonly used to complete home renovations and improvements as well, it can also be used for debt consolidation and to pay for things outside of home renovations. 

A home equity loan is a loan that is based on the amount of home equity you have but usually has a minimum value of around £10,000. Home equity can be calculated by taking off your existing mortgage value away from the property’s current market value. 

Most lenders will agree to borrow up to 80% of this amount, which can be substantial. The APR representative example on these loans is usually lower due to the security of using home equity as collateral. 

They are similar to secured home renovation loans that also use your home as collateral. You could lose your home if you do not repay in both cases. 

But they are not the same as an unsecured home renovation loan where no assets are listed and the interest rate is usually higher.

HELOCs vs home loans

A home equity line of credit (HELOC) is similar to a home equity loan but works more like a credit card. The homeowner withdraws money in stages over a drawing period and only makes repayments at the end of the same period. This can be good for home renovation projects because it enables easy budgeting of project stages. 

Moreover, as you only start making repayments after the drawing period ends – which can be years – you can complete renovations before repaying. If you are renovating the property to sell, this could be beneficial and is worth exploring further. 

Need help choosing the right option?

If you require more information on home renovation loans or would like to borrow using other products, we have bags more information for you here on MoneyNerd. Search our site with your questions and get clear answers fast. 

Additionally, you can get free money advice from an array of UK groups waiting and willing to help. Contact them now to uncover personal borrowing 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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