Home Improvement Loans

How home improvement loans work...

Home improvement loans can be used to finance improvements and renovations to your property with the aim of increasing market value.

They can be used for virtually any home improvement, from seemingly small redecorations, right up to full structural changes.

Some of the possible uses of a home improvement loan include:

• A new kitchen
• A new bathroom
• Central heating installation
• A conservatory
• Swimming pool
• An extension
• Creating a garage
• Building an annex

This is by no means an exhaustive list, but gives a flavour of the diverse projects that they can be used for.

Secured vs. Unsecured

Home improvement loans come in both secured and unsecured format. The type you choose will depend on your circumstances and financial situation.

Secured home improvement loans
If a loan is classed as 'Secured', it requires you to be a homeowner. This is because the lender will loan you the money against the value of the property. (i.e. if you don't repay the loan they will be entitled to repossess your home).

The amount you can borrow with a secured loan depends on the amount of equity you have in your property. (Equity is the amount of money your property is worth minus any outstanding mortgage).

For example: If you have an outstanding mortgage of £100,000 and your property is currently worth £250,000 you would have £150,000 of equity in the property.

Advantages:

• Secured loans can offer you larger loans (typically between £5000 and £250,000), depending on the equity available in your property.
• They can provide longer payment periods and therefore lower monthly repayments.
• Due to the added security the lender receives, it is more likely that you will be accepted with a bad credit history.

Disadvantages:

• The lender is legally entitled to your property if you can't make the repayments.
• The amount of money available means that you may borrow more than you need.

Unsecured home improvement loans
An 'unsecured' loan is offered to you based on your financial history and credit rating. You aren't required to put forward any collateral to cover the loan amount and, therefore, do not need to be a homeowner.

They are more difficult to obtain if you have a bad credit rating, but can be considered a safer option, as you have no personal property secured against the amount borrowed.

Advantages:

• You aren't risking the loss of any personal possessions if you fail to meet the repayments.
• It is less likely that you will borrow more than you need.
• You can repay the amount more quickly and, therefore, incur less interest.

Disadvantages:

• As the lender has less security, the maximum amount you can borrow is a lot less (typically £1000 to £25,000).
• They may be difficult to acquire if you have a poor credit history.
• The monthly repayments are likely to be more expensive.

Compare home improvement loans