Table of Contents
Getting any kind of loan if you have less-than-perfect credit can be more challenging, but there are usually options available, including if you want to improve your home. Read on to learn more.
Can you get a home improvement loan with bad credit?
Yes, there are lenders that are willing to offer loans for home improvements to people with bad credit.
Having a poor credit history, perhaps due to missed loan repayments, can make it harder to get a loan and may affect the terms you are offered. That’s because your credit record is a picture of your reliability when it comes to keeping to credit agreements. If a lender sees a bad credit score, it indicates that you’ve previously struggled to make repayments on time.
If you have bad credit and are eligible for a loan, you may also face higher interest rates and not be able to borrow as much compared to people with a better score.
But as well as your credit history, lenders will consider other factors, including your income, other debts, and whether you own your home. If these meet the expectations of a lender, having bad credit may not necessarily stop you getting a loan.
» COMPARE: Loans for bad credit
Is getting a loan with bad credit a good idea?
Even if you are eligible for a home improvement loan, take time to consider if it’s really the right option for you. If your planned improvements are essential or will add value to the property, this could make it worthwhile, as long as you’re happy you can afford the repayments.
But if your plans aren’t urgent, it may be best to wait before getting a loan. This could give you time to improve your credit score, which may allow you to access more competitive loan rates in the future.
Types of bad credit home improvement loans
There are a few options that you could consider to fund home improvements if you have bad credit. The best way to fund home improvements will always depend on your finances, how much you’re looking to borrow, and whether you can afford the repayments.
Secured loans
A secured loan involves using your home as security for the money you are borrowing. You may have a better chance of securing a loan with bad credit via a secured loan, as lenders know they can repossess your property to get their money back if you fall behind on repayments. But in turn, the real risk that you need to understand is that you could lose your home.
» COMPARE: Secured loans for bad credit
Unsecured loans
It can be harder to get an unsecured loan if you have bad credit, as lenders have no security to fall back on if you don’t pay. That said, there are some lenders that specialise in bad credit personal loans.
Interest rates are likely to be higher than on a secured loan, and you may not be able to borrow as much, but your home isn’t at direct risk.
» COMPARE: Best personal loans
Guarantor loans
Using a guarantor might open up more borrowing options if you have a low amount of equity in your home, or haven’t yet managed to build up a credit history. A guarantor might be a family member or a close friend. Applying for a loan with a guarantor could help improve your chances of acceptance and offer the chance to improve your credit score if you keep to your repayments.
If you have a guarantor loan and can’t meet repayments, your guarantor is legally obliged to step in and pay. You and the guarantor should be clear about what you’re agreeing to and what happens if you can no longer afford to pay it back. You will both want to be confident that you can afford the repayments.
Interest rates on guarantor loans can be higher than for other types of loans. However, if you have a bad credit score, guarantor loans may offer lower rates than if you applied for an unsecured loan without a guarantor.
How to get a home improvement loan with bad credit
Before approaching a provider or broker for a bad credit loan, work out how much you need to borrow for your planned refurbishments and use a loan calculator to get an idea of the repayments you may have to make. You’ll need to be confident that you can make these regular repayments for as long as the loan lasts, considering other outgoings and possible costs.
You can find loans for home improvements directly with a lender or through a specialist broker. As having a bad credit history will affect your chances of acceptance and the rates you’re offered, a broker can help you focus on providers and products you’re most likely to be eligible for.
Comparing loans across providers can also help you find the best deal with the most affordable rates for your own personal circumstances.
Alternatives to a home improvement loan
If you’re looking to find other ways to get the funding you need, you could consider:
Borrowing more on your existing mortgage
One option is to ask for a further advance from your lender to borrow money for home improvements. This increases your mortgage debt to release the funds you might need. The interest rate on a further advance is usually different to the rate you pay on your original mortgage debt, but it may be low compared to other loans. There may also be a minimum lending amount for home improvements.
Some lenders offer lower further advance rates if you are renovating to make your home more energy efficient. This might include installing solar panels or upgrading your boiler.
The lender will run a credit check and carry out affordability checks, which could affect its decision. A further advance is unlikely to be an option if you are in mortgage arrears.
If you are considering borrowing more on your mortgage, be clear about any fees the lender will charge.
Remortgage
It’s also possible to remortgage to pay for home improvements. When you remortgage, you could apply to borrow more than you owe and use the excess amount for your refurbishments.
If you remortgage, bear in mind that while a longer mortgage term may help with affordability, it will increase the amount of overall interest you pay. It’s also worth noting that lenders can be reluctant to extend mortgages for homeowners who are beyond a certain age.
Before making a decision, make sure you calculate the cost of any early repayment charges and application fees you may need to pay to remortgage to a new deal.
» COMPARE: Remortgage deals
Using an overdraft or credit card
If you only need to borrow a small sum of money, you could consider using a credit card or an agreed bank overdraft as a short-term way to fund your home improvements. But only consider these if you are in a position to pay off the debt in full before you are charged interest and know you won’t go above the credit limit. If you don’t already have these types of credit arrangements in place, a bad credit score will make it harder to be approved.
A credit builder card may be an option if you find it difficult to be accepted for a standard credit card. Using these sensibly can help you improve your credit score, but they can offer higher interest rates and lower credit limits.
» COMPARE: Best credit cards
Image source: Getty Images
About the Author
Dive even deeper
Compare Best Secured Loans
by Tim Leonard
Compare Best Personal Loans
