Home improvements can dramatically improve your quality of life, not to mention increase the value of your property. With eye-watering house prices and moving costs, home improvements are becoming an increasingly popular alternative to trading up. However, developments still require large financial outlay, and if like most of us, you don’t have tens of thousands lying around in savings, you’re going to want to look at the smartest ways to finance the work.
Personal loans are available from a range of lenders – including banks, building societies and supermarkets. Each lender will have its own interest rates, fee structures and amounts available. When the purpose of the loan is home improvements, some lenders offer longer terms, or larger maximum amounts.
Fast, flexible loans from Post Office Money
Borrow from £1,000 to £25,000
Instant decision in most cases
Fixed rate and fixed monthly payments over the whole term
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Representative example: Borrow £10,000.00 over 3 years at a rate of 3.2% p.a. (fixed). Representative APR 3.2% and total payable £10,493.64 in monthly repayments of £291.49.
Table: sorted by representative APR, promoted deals first
Please note: You should always refer to your loan agreement for exact repayment amounts as they may vary from our results.
Late repayments can cause you serious money problems. See our debt help guides.
Key features of personal loans
Loan amounts. Home improvement loans typically range from £1,000 to £25,000, with some lenders willing to offer existing customers up to £50,000. How much you’ll be able to borrow will depend on factors like your credit score, income and expenditure.
Loan terms. Loan terms range from one to eight years, allowing you to spread the cost out into affordable payments over a lengthy period of time. Generally speaking, the longer your repayment term, the lower your monthly repayments, but the more you’ll pay overall in interest.
“Fixed” interest rates. In most cases interest rates are fixed for the duration of your loan (but it’s important to check this) – a useful feature that can help you to plan out your future finances. The rate you’re offered won’t always be the advertised “Representative APR” however, and will depend on factors like the amount you apply for, the term of the loan, your credit rating and your income.
Personalised quotes. While pretty much all providers offer an online calculator that can give a rough idea of how much your loan might cost, some go a breadth further by offering personalised quotes. Sometimes referred to as “soft searches”, these reference your individual circumstances to give a more precise calculation of what you can borrow and how much it will cost you, without affecting your credit score.
Unsecured. Personal loans are normally “unsecured”, which means that the lender is not using an asset such as a property as collateral.
Fees. Sometimes lenders will charge you a “setup” or “arrangement” fee, although you won’t have to look far to find a loan with no fees attached.
Quick access to funds. Once accepted, lenders will normally have your money transferred within a day or two.
What is APR?
If you’re comparing any credit-based products, it won’t be long before you’ll come across the Annual Percentage Rate (APR). This figure is designed to provide an annual summary of the cost of a loan. It takes into account both interest and any mandatory charges to be paid (for example an arrangement fee) over the duration of a loan.
All lenders must calculate the APR of their products in the same way, and must tell you the APR before you sign an agreement, so for consumers it can be a handy tool for comparison. Bear in mind, however, that lenders are only obliged to award this rate to 51% of those who take out the loan – the other 49% could pay more. That’s why it’s often referred to as the representative APR.
Much will depend on your circumstances, especially if your credit score is less than perfect (maybe because you don’t have much of a credit history). Traditional banks, for example, usually advertise low APRs for their personal loans, but that’s because these tend to be targeted to customers with top credit scores.
What if my circumstances change during the term of the loan?
Personal loans are a fairly rigid form of borrowing, but lenders may offer some or all of the following services which can help if your circumstances change.
Repayment holidays. A number of home improvement loan providers offer a repayment holiday – a fixed period of time where you won’t be required to pay back your loan. This is commonly the first two months of your loan term, but some lenders will let you take a repayment holiday midway through the loan. Although this can be very useful, it will increase the overall cost of your loan as you’ll still be accruing interest during this period.
Additional borrowing. Each lender will have its own policy on “topping up” your loan or taking out multiple loans. A lender may insist that you terminate your first loan and start a new, larger loan, rather than running multiple loans concurrently.
Early repayment. If you think there’s a chance you might be able to repay your loan early, then it’s important to compare the early repayment terms of the loans you’re considering. Remember that “no penalty for early repayment” does not necessarily mean that you will save money in interest by repaying some or all of your loan early. In many cases, any overpayments will be subject to interest for one, or in some cases, two months beyond the date of payment.
How to make your renovations pay off
Before you begin renovating your home, establishing the purpose is very important. Do you, for instance, want to renovate your home to enhance your lifestyle? Do you want to make more money from renting it out or do you plan to sell it? While carrying out a feasibility study in the second and third scenarios is crucial, ensuring that you don’t overspend is important irrespective of why you want to renovate.
Add value through creativity. Homebuyers pay particular attention to a home’s bathrooms and kitchen, and without spending too much you can transform a seemingly run-down bathroom or kitchen. When it comes to making cosmetic renovations, it is best to limit to changes that are in plain view.
Keep a tab on expenses. This is not difficult if you plan ahead of time and then stick to your plan. When budgeting, take into account the cost of materials as well as labour, and spread your budget suitably across the different spaces that you wish to renovate.
Consider DIY. Undertaking renovations the DIY way can help keep costs in check, but make sure you have access to the right tools as well as the required skills.
Compare your alternatives. If you take the time to shop around and work on your negotiation skills you can save money on supplies as well as labour costs.
Think long-term. This is particularly important if you’re making changes to the house you plan to continue living in, simply because you’re the one who’ll benefit. Energy-efficient additions are a definite plus, and by opting to go the green way you can also qualify for certain rebates.
Home improvement loan Vs. remortgaging
If you’re a homeowner, you may wish to consider remortgaging as an alternative to a home improvement loan. Generally it makes financial sense to switch your mortgage periodically – for example when an offer period has expired, so, while you probably don’t want to get sidetracked, remortgaging could even be killing two birds with one stone. Whether you opt for a loan or to remortgage will depend on your individual situation, but here are some key differences to consider:
Personal loans are normally unsecured, and therefore represent a higher risk to a lender. This in turn normally leads to a higher interest rate for you, the borrower.
Because mortgages are secured loans, they often come with lower interest rates than other forms of credit. The small print is there for a reason though: your home may be at risk if you do not keep up repayments. Remember that most mortgages consist of a competitive rate during an offer period, but then tend to revert to a less competitive “standard variable rate”.
Unsecured personal loans are typically capped at £25,000. Some lenders will stretch to £50,000, but you’ll normally have to be an existing customer (or willing to switch your current account). The loan amounts are always subject to approval, and will be considered on a case-by-case basis.
The maximum amount you’re going to be able to borrow by remortgaging will depend on factors such as the amount of equity you have in the property (how much of it you own), the value of the property, and personal circumstances such as your age, credit score, income and expenditure (and that of any other people whose names would be on the mortgage). Potentially though, remortgaging could give you access to larger sums than a personal loan.
Personal loans last for a fixed period – typically between one and seven years. Generally speaking, borrowing over shorter periods means paying less in interest overall, even if the annual rate isn’t as good.
Mortgages can obviously last a lot longer than personal loans, and as a rule of thumb, the longer you borrow for, the more you pay in interest. It’s smartest to consider the “total amount payable” on the amount you borrow.
With a fixed-rate personal loan you’ll pay the same amount each month, and pay off your loan over a pre-arranged period, typically between one and seven years.
If you’re spreading the cost of your home improvements over 20 years or more, for example, then naturally your effective monthly repayment on the home improvements will be less than if you only borrowed for a couple of years. The downside is that you’ll pay more in interest overall.
Personal loans almost always charge interest at a rate that’s fixed for the duration of the loan, which can be helpful for budgeting. You should confirm whether or not this is the case before you apply. For some people, the peace of mind that a fixed rate offers is paramount.
Because mortgages can cover terms as long as 35 years (or in rare cases even more), lenders are understandably not likely to fix the interest rate for the duration of the loan. There are plenty of mortgages around that offer a fixed rate introductory period, however. Typically this might be for 2 or 3 years.
You don’t have to look too hard to find a personal loan that has no product/set-up fees attached. If there is a fee involved, it’s likely to be relatively small.
Mortage product/setup fees vary much more than personal loan fees – it’s not unusual to come across product fees of £1,000 or more.
Personal loans can be applied for, approved and drawn down in minutes. More often it will take a day or so.
Realistically, remortgaging takes a while – undoubtedly longer than a personal loan. On the other hand, it is something that you’re likely to want to do every few years anyway.
Am I eligible for a loan?
You should only apply for a personal loan if you’re certain you can meet the repayment terms. Most lenders will also require you to meet the following:
Be a UK citizen aged 18 or over.
Have proof of your current income and employment details (payslips and bank statements).
Be able to provide three years of address history.
Have not been declared bankrupt in the last 6 years.
What is the process?
Decide on your provider and loan. You can use our comparison tables to help find an option that suits you.
Decide how much to borrow. Many websites have an online calculator so you’ll know how much your loan will cost.
Fill in your application form. These can typically be done online.
Await your decision. Lenders will run an affordability and credit check.
Receive your loan. If you’ve applied online, once accepted loans are often transferred immediately.
Get to work! That’s the finances sorted… now the real work begins!
Home improvement loan FAQs
Although most lenders will require a strong credit score, some have carved out a niche for themselves by lending to those with a less than perfect rating. These lenders will probably focus more on affordability – your income and expenditure – than on your credit score. In these cases you’re likely to find yourself paying a significantly higher rate of interest. Another option that you may wish to consider would be a guarantor loan.
It can be difficult to find the cash to start paying back your home improvement loan immediately. Some providers offer a repayment holiday – an agreed period of time in which you don’t have to make repayments, typically offered at the beginning of your loan to give you time to get back on your feet. Although this can be useful in the short-term it will mean paying back more overall due to interest.
With so many variables, it can be hard to predict precisely how much your home improvements are going to cost. If you decide to opt for a more expensive home improvement than originally thought, or face issues during installation, you may be able to top up your loan or take out a separate loan. Each lender will have its own policies on additional borrowing, so it’s worth checking before you take out your loan.
Chris Lilly is a publisher at finder.com. He's a specialist in credit-based products including business and personal loans, mortgages and credit cards, and is passionate about helping UK consumers make informed decisions about their borrowing. In his spare time Chris likes forcing his kids to exercise more.
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