Home Improvement Loans

There are different types of home improvement loans that you can consider if you are planning to borrow funds for your home renovation project. Hence, it is necessary to understand each of the home improvement loan types to choose the best option as per your financial needs. 

Personal Loans for Home Improvements 

A personal loan for home improvement is an unsecured loan that you can borrow without having to offer any collateral. You apply for the loan, and if approved, you will get the amount in a lump sum that you can use for your home renovation. You will agree to an interest rate with the lender or financial institution you are borrowing the loan from. You will have to repay the loan to the lender along with the interest over a set period till the time the loan is completely paid off. 

Secured Home Improvement Loans 

A secured home improvement loan will require you to offer collateral. Your property or house may be used as collateral when you borrow a loan. With this type of home improvement loan, you can borrow a slightly higher amount than with a personal home improvement loan. Although the amount you can borrow is high, there are chances you might lose your property if you fail to make the repayments. 

Remortgaging for Home Improvements

Many homeowners want to remortgage their homes in order to access the equity they have built up therein and finance the home upgrades. The funds are subsequently used to upgrade the property, which eventually increases the worth of their estate. This is just one of many reasons many individuals refinance their homes. Other popular reasons for remortgaging are freeing up equity or purchasing a new property.

To borrow a home improvement loan without the application being rejected, you must know the eligibility criteria. Knowing the criteria beforehand gives you an edge when you apply for it as the chances of your loan application being rejected become low. 

Although two basic eligibility criteria for applying for a personal loan for home improvement are – you must be 18 years of age or above and you must be a citizen of the UK. 

Apart from these, there are other criteria that need to be considered, let us go through each of them in detail. 

Credit Score Requirements for a Home Improvement Loan 

There is no set credit score required to qualify for home improvement loans because lenders are free to evaluate each loan application based on their own evaluations. However, in order to succeed, you should have a credit score of at least 650 to 700.

If you are using an asset to secure the loan in order to lessen your lending risk, you might be able to acquire a home improvement loan with a somewhat lower score as well. 

Income and Employment Criteria for a Home Improvement Loan 

The lender will evaluate a borrower’s ability to repay the loan. Based on your whole personal and financial situation, they have a duty to ensure that you can afford the repayments. They will inquire about your personal circumstances, including your regular employment income, in order to determine your affordability. You may be asked a series of questions on your income and employment while filling up the application form. The evaluation criteria will vary from lender to lender. 

Loan-to-Value (LTV) Ratio

When considering getting a mortgage, lenders and financial institutions will often use a ratio called loan to value (LTV). It refers to the size of the loan in relation to the overall value of the property and is frequently represented as a percentage. Lenders seek assurance that, even if you don’t make your repayments on time, they won’t lose money by lending to you. They will always have the option of seizing your home and selling it to reclaim the loan value if you are unable to make mortgage payments. Hence, the loan to value of your property is considered while assessing your loan application. 

Property Ownership and Residency Requirements 

You need to be a homeowner if you are borrowing a secured home improvement loan or if you are remortgaging your property.

You should only apply for a home renovation loan from a lender that the Financial Conduct Authority (FCA) has authorised and regulated. This will protect you from fraud and careless lending. 

Continue reading to understand the entire loan application process. 

Researching and Comparing Loan Options 

Get an accurate estimate and cost for the home renovations you need before applying for a loan. Look into your possibilities on the market, and use the home improvement loan calculator for an estimate. Keep in mind that these are not entirely accurate as these are just an estimate. The lengthiest and most time-consuming phase should be this one. Your efforts to spot the best offers here could result in significant financial savings.

Compare multiple home improvement loans from FCA registered lenders with a single loan application form within minutes with LoanTube. 

Gathering Necessary Documents

Once you finalise a lender or the offer that you want to go ahead with, check with the lender for the documents you need. Alternatively, you can visit their website, however, it is best if you contact them as the documents you may have to provide will depend on your personal and unique circumstances. Mostly, you will be asked to provide proof of address, proof of identity, proof of income and employment, and home ownership. 

Applying for a Home Improvement Loan 

Applying for a home improvement loan is easy and can be done completely online. All you have to do is fill in the loan application form with your personal, financial, and employment details and submit it online. You may have to share a few documents that will be beneficial for assessing your loan application. 

Loan Approval and Disbursement Process 

The lender will start evaluating your loan application based on their evaluation criteria. They will run a credit check on you to know how reliable you are and if you can make the repayments on time. Your credit score and history will give them an idea of the type of borrower you are. If you meet their criteria, your application will be approved. 

The time taken for approval of the loan application varies from lender to lender. After conducting the essential rates and setting an interest rate for your loan, the lender will disburse the loan amount only if you agree to their terms and conditions.

Home Improvement Loan Amount and Repayment Terms 

How much could you possibly borrow with a home improvement loan is one of the most asked questions. Knowing the amount that you can borrow for your home renovation helps you in planning the project. 

Determining the Loan Amount Needed 

Whether you choose an unsecured loan or a secured loan will determine the amount that you can borrow with a home improvement loan. With an unsecured loan, you can often borrow up to £35,000 to go towards your home improvement and remodelling tasks. You might need to get a secured loan if you require a higher amount.

With a secured loan, you may typically borrow tens of thousands of dollars or even hundreds of thousands of dollars, however, the precise amount you can borrow will depend on your income, credit score, and the amount of equity you possess in your home.

If your planned repairs would increase the value of your property, lenders might be more interested to offer a higher amount of money.

Factors Influencing Loan Amount and Interest Rates 

The loan amount that you can borrow and the interest rate you will be charged on it depends on a variety of factors and some of which are listed below: 

• Your credit score and history
• Income 
• Employment 
• Home equity available 
• Amount of loan you are planning to borrow
• Repayment period 

Lenders need to ensure that you can pay back the loan on time and hence, they may assess a few other parameters before making their decision on the interest rate they will charge on the home improvement loan. 

Home Improvement Loans Repayment Period and Monthly Instalments

You can borrow the loan for 7 years or more depending on the lender or financial institution you are dealing with. Also, the repayment period depends on the loan amount you will be borrowing. The repayment period will be more if you are borrowing a secured loan as collateral is involved and hence, the lenders have an assurance. 

The monthly instalment amount that you have to pay towards your home loan repayment depends on the interest rate you are being charged, the loan amount and the repayment period chosen by you. It completely depends on your personal and financial circumstances.

There are different types of interest rates that are levied on a home improvement loan. Understanding them will give you an idea of which type of interest rate will be beneficial for you. 

Generally, there are two types of interest rates that are available on a home improvement loan:

• Fixed Interest Rate 
• Variable Interest Rate 

Let us understand the difference between both of these interest rates to help you choose better for your financial health. 

Fixed-Rate Vs. Variable-Rate Loans 

With a fixed interest rate loan, the interest rate will remain the same throughout the loan duration. That means your monthly repayment amount will be fixed and you will know the actual cost of borrowing a loan beforehand, which will help you plan your finances accordingly.

However, with a variable interest rate loan, the rate of interest will keep on changing throughout the term of the loan. It may get higher or lower. Hence, the monthly repayment amount will not be fixed. There is a chance that you may end up paying more towards your loan if you choose this type of interest rate. 

Annual Percentage Rate (APR) and Representative APR (RAPR) 

The official rate, known as the annual percentage rate (APR), is used to explain the cost of borrowing. It considers the credit offer’s interest rate and any other additional fees included in the loan. Before you commit to a credit agreement, all lenders are required to disclose their APR to you.

When a representative APR of a loan is disclosed, it guarantees that at least 51% of borrowers will receive a rate that is equal to or less than that rate. There is no assurance that every one of that 51% of loan applicants will receive the same rate, though. 

The annual percentage rate, or representative APR, is a sort of interest rate that describes the cost of borrowing money. It is simple to compare loans because they are often graded according to their representative APR.

Loan Origination Fees and Other Charges 

When a lender decides to lend you money, they will charge a loan origination fee. It is a fee that they take for arranging funds for you. It is generally included in the loan amount that you will be borrowing. The interest rate is levied on the total amount including the loan origination fee. 

The percentage the lender or the financial institution may charge you as a loan origination fee depends on them, and the loan amount you are borrowing. It is not fixed. 

Early Repayment and Penalty Fees 

You will have to pay an early repayment fee to the lender if you wish to foreclose your home improvement loan. Because the lender will lose out on the interest they would have earned had you continued with the loan term. The early repayment fee is generally decided by the lender. Contact your lender to understand how they charge it and what amount you have to pay if you want to pay your loan off early. 

Also, if you miss your repayment, the lender will charge a penalty of paying it late or missing it completely. Ensure you repay the loan on time to avoid impacting your credit score and paying more.

There are various lenders and financial institutions that offer home improvement loans. Before you decide which lender to go ahead with, you have to decide what type of home improvement loan you want. Not all lenders offer both secured and unsecured loans. Hence, after deciding the type of home improvement loan you want, choose a lender.

Borrowing a Home Improvement Loan from Banks and Building Societies

You may decide to borrow a home improvement loan from a bank or a building society. The lending and application evaluation criteria of each of the banks and building societies may differ from each other. However, most of them would consider your age, income, employment, and credit score to make their lending decision.

Home Improvement Loan Online Lenders and Peer-to-Peer Platforms 

You can also opt to borrow a home improvement loan from online lenders or peer-to-peer lending companies. With an online lender, the process of applying for a loan will be easier. You have to fill in the application form and submit it online. The lender will carry out necessary checks and decide an interest rate. 

Peer to peer (P2P) lending enables individuals to lend money directly to others who want to borrow it, bypassing banks.

Due to the P2P platform’s reduced overhead than a bank, this more direct approach enables lenders to earn a greater rate of interest and borrowers to pay a lower one.

Government Schemes and Grants 

There are various government grants and schemes that you can take help of as a homeowner if you want to increase the value of your property or to redo it. For example, Green Home Grants voucher scheme by the Government encourages the homeowners to carry out energy efficient home improvements. The government will give you a maximum of £5,000.

Home Improvement Loan Brokers 

You can borrow a home improvement loan through online brokers. LoanTube is a loan broker that has partnered up with multiple FCA authorised lenders. You can apply with multiple lenders with a single application form. It will save you time, and effort in finding the best lender for a home improvement loan as per your financial needs.

There are a variety of home renovation projects that you may want to carry out. But remember, not all the renovations will help boost the overall value of your property. Different types of improvement will have different impact on your property.

Kitchen and Bathroom Renovations 

Start with your kitchen and bathrooms if you want to renovate a specific room. The highest return on investment is most likely to occur in these two categories. Think about replacing the bath or the flooring when updating the bathroom. The value of your home can be significantly affected by small modifications.

Loft Conversions and Extensions 

With a loft conversion, you may create extra living space out of the underutilised, or frequently unoccupied, or boiler-housed space you already have at the top of your home. Choose the area or part of your home that you think needs a conversion and plan for the expenses accordingly. 

A common strategy to increase space in your property and increase the value of your home is to extend it. The benefits of staying put and making improvements to your current property quickly outweigh the trouble and expense of relocating – from legal fees to stamp duty.

Energy-Efficient Upgrades 

Find out how much energy your home uses in order to determine the most cost-effective ways to make improvements. You can opt for insulation, draught-proofing, lighting and heating to upgrade your home and save money. 

Structural Repairs and Renovations

You can also opt for a home improvement loan if you need to carry out any structural repair or renovation. Making any structural change to your existing property may cost you more and hence, plan it wisely before you take such a decision.

Let us understand the different options available to finance your home improvement project and how they weigh as compared to a home improvement loan so that it becomes easier for you to choose the right financing option that can be beneficial for managing your finances. 

Using Credit Cards for Home Improvements 

If the home improvement project you are planning to do to your property is a minor one and your credit card has that much of limit, you may consider using your credit card. However, remember that you have to pay back the amount by the next pay date or else, the interest rate charged on it will be high. Whereas, with a home improvement loan, the rate of interest you will be charged will be lower as compared to a credit card. 

Home Equity Loans and Lines of Credit

Home equity loans and lines of credit are another popular way of borrowing funds for home improvement. However, with such options for financing your project, you have a chance of losing the property as it will be considered as collateral. While as with an unsecured personal loan for home improvement, you do not have a chance of losing your home or property if you fail to make the repayment because your property is not being used as collateral. But remember, not making the repayments on time will impact your credit score. 

Savings and Personal Funds for Renovations 

If you have saved money and kept aside a separate fund for catering to your home improvement project, you can use it as you do not have to think about the repayments and your home will not be used as collateral. However, if the amount you have set aside will not be sufficient to carry out the projects you are aiming for then you may have to take out additional funds to complete the home renovation you have started. 

Home Improvement Grants and Subsidies 

There are various government backed schemes and grants that you can use to fund your home renovation project, however, the amount could be lot lower and you may not be able to finish the entire project you are eyeing at. If you have a nominal project size, it is better to consider a home improvement loan rather than borrowing funds from grants and schemes. 

Potential Risks and Considerations while Borrowing a Home Improvement Loan 

While borrowing a home improvement loan, you must know the dos’ and donts’ along with the risks associated with borrowing funds. Knowing about the potential risks will help you steer clear from any financial troubles later on. 

Affordability and Financial Planning

Plan your finances efficiently before borrowing a home improvement loan. If you have existing debts, you need to have a clear repayment plan. Check your affordability before you apply for the loan so that you do not fall back on the repayments. 

Potential Impact on Property Value 

Making home improvements to your property will definitely make your living space better and also add to the overall value of your property. However, not all the home improvements you carry will have the same effect on the property value. Hence, choose your home improvements wisely and segregate them on the basis of your need – whether you want to spice up your home or to add value to it. 

Loan Repayment Obligations and Consequences of Default 

With an unsecured home improvement loan, if you default on the loan, your credit score will be impacted. If you miss the repayments in a series, and then completely stop making any repayments, you may be issued a County Court Judgement (CCJ) that will stay on your credit report for years. 

Further, with a secured home improvement loan, you will lose your property to the lender or financial institution in case you fail to make the repayments.