Home Improvement Loans if You Have Bad Credit

If you’re looking to fund a home renovation but have a bad credit score, a home improvement loan could be an option. However, your credit history will usually affect the interest rate you’re offered, the amount you can borrow and how likely you are to be accepted.

Holly Bennett Published on 22 August 2022.
Home Improvement Loans if You Have Bad Credit

It can be possible to get a loan to cover the cost of home improvements if you have a bad credit history. But is it worth improving your credit score first? Here are some options.

Can you get a home improvement loan with bad credit?

Some lenders offer loans to borrowers with bad credit to pay for home improvements.

But having a poor credit history, perhaps through missed loan repayments, may affect a lender’s decision and the terms you are offered. That’s because it’s a picture of your reliability when it comes to keeping to credit agreements. Lenders see a bad credit history as an increased risk to them.

Depending on the type of loan you apply for, lenders consider other factors too, though. These include your income, other debts and how much of your home you own outright.

» MORE: Guide to home improvement loans

Which loan is best for a house that needs improvements?

There are a few options that you might consider to fund home improvements if you have bad credit:

Secured loans

A homeowner loan is a secured loan, where your home acts as security for the money you are borrowing. You may have a higher chance of securing a loan with bad credit if you opt for a secured loan. This type of borrowing is a big decision, though. That’s because you could risk losing your home if you fall behind on repayments.

A second charge mortgage or a further advance from your mortgage lender are both types of secured loans. Secured loans tend to offer larger amounts of money than unsecured loans, over longer periods. Though the longer the loan term, the longer you will be paying interest.

» COMPARE: Bad credit secured loans

Unsecured loans

You may be less likely to be accepted for an unsecured loan if you have bad credit, though some lenders specialise in bad credit personal loans.

This type of loan isn’t secured against your home or other assets, which reduces the risk to you because your home isn’t used as collateral. But as the lender doesn’t have an asset to fall back on if you default on payments, you might be offered a loan with a higher interest rate.

» COMPARE: Bad credit 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. This might be a family member or a close friend. It 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.

Guarantor loans interest rates are likely to be higher than for other types of loans.

» COMPARE: Homeowner guarantor loans

In short, 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.

How to get a home improvement loan with bad credit

Before approaching a provider or broker for a bad credit loan, calculate what you can afford to pay each month. 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.

» MORE: Loan application tips

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. It’s possible to ask for a further advance and also remortgage. This might be to a deal with a different rate or to extend your mortgage term, to spread the debt over a longer time. A longer mortgage term may help with affordability, but it’s a big decision and will increase the amount of overall interest you pay. Also keep in mind that lenders can be reluctant to extend mortgages beyond a certain age.

» COMPARE: Remortgages

Using an overdraft or credit card

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: Current account overdrafts

Borrowing from friends and family

This isn’t an option for everyone and has potential drawbacks, but you could consider borrowing the money from those close to you.

Loans between friends and family can help avoid high interest rates that might come with loans from lenders or other types of debt. You won’t need to have a credit check, either. Just make sure you put something in writing and agree on a workable repayment plan if the money is a loan rather than a gift.

Is timing important for loan applications?

It can be. It might be a good idea to hold off on your home improvements for a few reasons:

You can improve your credit score first

A good credit history can help open up lower interest rates and increase your chances of being accepted for a loan (and your choice of lenders). There are a few ways to improve your credit score. These include paying your debts on time and even small changes, such as registering to vote or checking for errors on your report. Bear in mind that interest rates may change in the time it takes to improve your credit score.

You can avoid an early repayment charge

Some mortgage deals have an early repayment charge where you pay a fee for remortgaging before your current deal is due to end. It’s usually a percentage of how much you still owe on your mortgage loan, so it can be substantial. You may want to time a remortgage to avoid this charge.

You don’t harm your credit score

It’s best not to apply for multiple credit agreements in a short space of time. When you make a loan application with a lender it will run a hard credit check. This will appear on your credit report and be visible to other lenders. Too many applications and refusals suggests to lenders that you are a higher risk to lend to. It could also further affect your credit score.

Try to only apply for loans you could be accepted for, and consider using a specialist broker to help find these. Brokers and comparison sites will usually only run soft credit checks when you get a quote. These won’t appear on your credit report.

» COMPARE: Bad credit loans

WARNING: Think carefully before securing other debts against your home. Your home may be repossessed if you don’t keep up repayments on a loan or any other debt secured on it.

Image source: Getty Images

About the author:

Holly champions clear, jargon-free writing. She’s been creating finance content for leading organisations for over 10 years. Read more

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