Home Improvement Loans Explained

A home improvement loan can fund any work you need to carry out on your property, whether you want to increase its value or simply improve your living situation.

Jim Kersey, Rhiannon Philps Last updated on 19 November 2021.
Home Improvement Loans Explained

Whether you’re seeking to increase the value of your property, or simply hoping to make your home more personal and tailored to your requirements, home improvements can be rather costly.

However, you may not want to wait months or years to save up the money you need to fund your home improvements. This is where home improvement loans can help, as they allow you to pay for your renovations immediately and spread the cost across monthly payments for several months or years.

Here’s what you need to know if you’re considering a home improvement loan.

What is a home improvement loan?

Home improvement loans are basically standard loans that you can take out to fund repairs, renovations, extensions or other improvements to a property that you own.

For example, you can take out a home improvement loan for a range of renovations, including:

  • a loft conversion
  • adding an extension
  • redecorating one or more rooms
  • building a conservatory
  • a new kitchen or bathroom
  • energy-efficient improvements e.g. insulation, double-glazing.

Whether your planned renovations are small or large, a home improvement loan can help you to pay for the work and materials needed to complete them.

There are a number of types of home improvement loans, but they will typically pay you a lump sum which you will then repay in monthly instalments over an agreed term.

Loans can be used to cover the full cost of the renovations or a portion of the overall costs, with the remaining capital coming from elsewhere, such as your savings.

Who might want a home improvement loan?

You may choose to get a home improvement loan if you want to carry out work on your property but don’t have the cash to pay for the improvements immediately.

You might want to make changes to your property to boost its value before selling, or you may simply want to make renovations so the house is more suited to your family requirements.

Getting a loan to pay for the renovations means you won’t have to wait until you’ve saved up enough to afford them, but instead can get started once you receive the money from the lender.

What to consider when applying for a home improvement loan

Before applying for a loan, you first need to make sure it’s the right decision. You should know exactly what renovations you’re going to make and how much they will cost, then make sure you will be able to afford the repayments.

Only borrow the amount you need. Even if you are eligible for a bigger loan, the more you borrow the more you’ll need to repay.

The amount you can borrow will depend on the type of loan you choose, the lender and your individual situation.

Lenders will take various factors into consideration when setting the terms of a home improvement loan, as well as when deciding whether or not you are eligible for the product.

These include:

  • Your credit score
  • Your income and regular expenditure
  • How much money you want to borrow
  • How long you want to repay the loan
  • What you plan to use the loan for (although not every lender will ask this)
  • Whether the loan will be secured or unsecured

What types of home improvement loans are available?

Unsecured home improvement loans

An unsecured loan can be used to fund work on your house. You can typically borrow up to £25,000 with an unsecured loan, so this could be a useful option if you’re planning some relatively small renovations.

Because the loan isn’t secured on any property, the lender does not have an automatic claim against your home if you can’t make your repayments.

To get the best interest rates on unsecured loans, you will need a good credit score and show that you can comfortably afford the repayments.

» COMPARE: Unsecured personal loans

Secured home improvement loans

A secured home improvement loan can also be taken out to make improvements on where you live, with the money being borrowed against the equity or value of your home.

If you’re unable to pay back the loan as promised, the lender can take back the money you owe from the equity that you’ve built up in your house. For this reason, it’s important to carefully consider whether this type of loan is right for you, and make sure you can definitely meet your monthly repayments as your home may be at risk if you fail to do so.

Interest rates for secured loans are usually lower than for unsecured loans, as you have minimised the risk for your lender by offering your home as security. You can also typically borrow more with a secured loan and repay it over a longer period, with some lenders offering loans of £100,000 or higher.

Because of this, you may consider a secured loan if you’re planning major renovations to your property.

» COMPARE: Secured loans

How much could I borrow with a home improvement loan?

This depends on whether you choose an unsecured or secured loan. Typically, you will be able to borrow up to £25,000 with an unsecured loan, which you can use towards your renovation and improvement projects.

If you need a larger sum, you may need to take out a secured loan.

You will generally be able to borrow tens of thousands, or even hundreds of thousands, with a secured loan, although the amount you can actually borrow will depend on the value of the equity you own in your house, as well as other factors such as your credit score and income.

Lenders may be more willing to lend a larger sum of money if your planned renovations will increase the value of your property.

Alternative ways to borrow for home improvements

If the amount you need to borrow is small and for a short amount of time, you might consider using a credit card to finance the necessary work. There are many credit card providers offering low or 0% interest periods on purchases or balance transfers – but keep an eye on the deal end dates as, if you still have outstanding debt on your card after this time, you may end up paying much more interest than you would on a standard loan.

If you want to borrow a larger amount and you have a mortgage on your home, you may want to consider remortgaging. Depending on your situation and your lender, you may be able to remortgage and borrow a larger sum than you currently owe, using the excess to pay for your home improvements. While this means you only need to make one set of repayments, there are other factors you need to consider before making such an important decision.

For example, you need to think about when your current deal ends, whether you would need to pay any charges to remortgage, and how long the repayment term is. You should also consider the rate you are currently on and how much it would cost overall if you remortgaged to a new deal, as it may make sense to keep your current mortgage if you’re on a competitive rate of interest.

In both cases, you should ensure that monthly repayments will be manageable across the term of the loan, even if your circumstances change.

» COMPARE: Remortgage deals

About the authors:

Jim brings together unique data insights, contextual knowledge and thought provoking themes, to shed new light on important issues affecting both UK businesses and individuals. Read more

Rhiannon is a financial writer for NerdWallet, with a particular interest in personal finance and insurance guides for consumers. Read more

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