What is a home improvement loan?
A home improvement loan is used to help fund home improvements and renovation projects for a property you own.
You can use a home improvement loan for anything from extending a part of your house to replacing a kitchen or bathroom.
Some lenders may call this type of loan, renovation finance, or renovation financing.
You can secure a home improvement loan against your home - known as a secured loan, allowing you to borrow more significant amounts. A word of caution - you risk losing your home if you can’t keep up the repayments when you take out a secured loan.
What can you use a home improvement loan for?
Home improvement loans are designed for renovations or building work on your home. Some people do this to increase the value of their home just before they sell it; others use home improvement loans to extend their homes or to pay for a new kitchen or bathroom.
Once the money is in your account, precisely what you spend the money on is entirely down to you. You can use it to pay builders, architects, landscape gardeners and decorators or buy paint, plasterboard, materials and furniture - it’s up to you.
Are home improvement loans secured?
You can get both secured and unsecured home improvement loans.
A secured loan uses an asset, usually your home, as security for the lender. If you can’t repay the loan, the lender will repossess your home to repay the borrowed money.
An unsecured loan - also known as a personal loan, is more straightforward. You borrow money and don’t need to provide an asset to guarantee it.
What are the pros and cons of secured home improvement loans?
- You can usually borrow more significant amounts
- If you have a low credit score, you may be more likely to be approved
- You have longer to pay the loan back
- If you don’t keep up your repayments, you could risk losing your home
- The amount you can borrow may be limited by the value of your property and how much of it you own
- Typically you’ll only be able to borrow amounts over £5,000
How do home improvement loans work?
Borrowing money for home improvements works in precisely the same way as any personal loan. You will need to submit an application for a home improvement loan to a lender who then decides whether or not to lend money to you depending on your financial circumstances. If approved, you will receive a lump sum paid into your bank account. You will then repay what you’ve borrowed to the lender in monthly instalments, with added interest.
How do I get a home improvement loan?
Before applying for a home improvement loan, it’s worth doing the following;
Compare home improvement loans
You should compare home improvement loans on a site like ours to compare fees, interest rates and APRs to determine the right one for you.
Check your eligibility
Criteria will differ from lender to lender; however, you’ll need to be at least 18 years old, be a UK resident and have a bank account.
Most comparison sites will help you to check if you meet a lender's criteria before applying.
Check your credit score before you apply
A good credit rating demonstrates to lenders that you’re likely to repay your loan and can increase your chances of being approved for a loan.
If your credit score is poor, you can work to improve it by;
- Registering to vote
- Limit new credit applications in a six-month window
- Correct any mistakes on your credit file
- Don’t withdraw cash on credit cards
- Pay your bills on time and in full
Make sure you can afford it
It’s worth getting your finances in order before you apply for a home improvement loan.
Start by making a budget by listing all your outgoings and incomings for the duration of the loan, and be realistic about whether you’ll be able to afford the monthly repayments on top of this. Don’t forget to budget for things like Christmas, birthdays and holidays, so you don’t over-stretch yourself financially.
Can you get a home improvement loan with a mortgage?
Yes, you can apply for a loan if you’ve got a mortgage. If you’ve recently moved house and your mortgage is new, you may not be able to get a home improvement loan with the same lender for six months after you’ve moved.
Any lender will look at your debt to income ratio to ensure you’re not taking on too much debt. If a lender thinks you’re overstretching yourself and you may not be able to afford the total monthly repayments, you may not be approved for a loan, so it’s worth paying off any existing debts before applying for a new loan.
If you’ve owned your property for a long time and paid a lot of your mortgage off, you could use the equity in your home for renovation projects instead of a loan. As an alternative to borrowing money, you can release a portion of your home’s value as a tax-free cash lump sum - this is known as equity release.
If you want to make significant improvements to your house that requires a large sum, borrowing extra on your mortgage is another way of financing home improvements.
What is the best loan for home improvements?
The best loan for home improvements will entirely depend on your circumstances. What’s best for one person might not be suitable for you. Ideally, you’ll want to find a loan with monthly repayments you can afford with the lowest interest rate. If you think you might be able to pay off the loan early, you’ll also want to compare early exit fees to see if you can find one that doesn’t charge you extra to pay off your loan before the end of your agreed term.
If you have a lot of equity in your home, you may want to consider releasing some of it to pay for your home improvements.
If you’re only making minor changes to your home, you might want to consider using a 0% interest credit card instead of a loan. You’ll need a good credit score to get a decent credit limit and be offered a 0% deal.
How much do home improvement loans cost?
Deals will vary depending on;
- Your circumstances
- The lender
- Whether or not you secure the loan against an asset such as your home
The best unsecured personal loan rates are usually only offered if you have a good credit history.
It’s always worth comparing loans on a comparison site like ours to find the best terms and lowest interest rates.
Can you get a home improvement loan with bad credit?
If you have a bad credit history, you still have options. Your chances of approval will increase if you can provide the lender with a way of guaranteeing that you’ll repay them by asking a friend or family member to act as a guarantor, or you could look at securing the repayments against your home.
If you wanted to explore these options, you’d need to look for secured home improvement loans or guarantor home improvement loans.
Alternatively, you can wait and rebuild your credit history by doing the following;
- Check your credit report for mistakes
- Check your credit report to see if you’ve been financially associated with someone you’re no longer linked to
- Paying utility and mobile phone bills on time
- Avoiding multiple applications for credit in a short space of time
- Registering to vote
- Keeping your use of credit low
- Avoid withdrawing cash on a credit card
Are home improvement loans a good idea?
A home improvement loan could be a good option if you have a good credit rating. You may benefit from low-interest rates, and improving your home may increase its value in the long term.
Work out how much the price of the improvements is likely to cost in total before applying for a loan because that will help you work out whether or not you can realistically afford the loan.
If you’re using the loan for renovations because you want to sell your house, it’s worth talking to an estate agent to see how much the improvements would increase the value of your home by. If you’re borrowing money because you believe it will be a good return on investment, you want to be sure you’re not borrowing more than you’ll gain back when you sell your house.
What are the pros and cons of unsecured home improvement loans?
- You can usually borrow smaller amounts if you have small repairs and projects you want to work on
- You won’t be risking your home as equity
- Some lenders allow you to start repaying your loan after several months rather than immediately
- If you have big plans, you may not be able to borrow a large amount
- If you borrow small amounts, the interest rate can be high
- You’re likely to need a good credit score
Home Improvement Loans FAQs
If you’re making significant changes to your home and need a lot of money, borrowing extra on your mortgage could be an option.
As an alternative to borrowing extra on your mortgage, you may want to release equity from your home instead to cover the cost of your home improvements.
If you already have a mortgage, nothing stops you from applying for a home improvement loan with either your mortgage provider or a different lender.
Some mortgage providers might be reluctant to approve you for a loan if you’ve recently taken out a mortgage with them, so it might be worth waiting six months before applying depending on the lender.
How much you can borrow with a home improvement loan depends on your circumstances, credit history and income. If you’re considering an unsecured loan, then amounts typically range from £200 to £25,000.
If you’re considering applying for a secured loan, the amount you can borrow can be much more significant.
No, it’s not possible to get an interest-free home improvement loan; however, some retailers offer interest-free finance for large purchases like a new kitchen or bathroom.
Retailer interest-free financing or buy now pay later deals could be an option if you’re concentrating on just one room. However, many retailer interest-free deals are short, and the APRs are higher after the initial interest-free period. You will usually need some money upfront to put down as a deposit too.
It’s always essential to compare any loan or finance you apply for before deciding what’s right for you. Remember to compare interest rates, the amount you’ll need to repay monthly and any hidden fees before signing on the dotted line.