What is a home improvement loan? Explain It.

Picture this: You are sitting in your newly improved kitchen with a brighter look, advanced appliances, and increased space. Everything is functional compared to your previous setup. You no longer need to operate some aspects manually. The new kitchen is more approachable, clutter-free, and easy to manage. Doesn’t it feel good?

It is indeed satisfactory to renovate your home and get the exact results. Moreover, with Brits adopting an “improve, don’t move” mindset, the need for home improvement loans is increasing. The blog provides a detailed discussion of the loan, including when to approach it, its pros and cons, and associated costs.

What do you mean by home improvement loans?

A home improvement loan is a personal loan used for renovating the kitchen, bathroom, living room, lawn, etc. It is a secured and unsecured financial facility to upgrade the house’s value.

Secured loans are ideal for homeowners as they get more cash by staking the property as collateral. One may fetch a lump sum to fund house repairs without tapping savings. Alternatively, the interest rates and terms remain a little competitive on unsecured loans. Individuals with good credit scores and finances may get low interest rates.

The repayments remain fixed until the loan term. However, skipping instalments, paying them late affects your overall amount due. You may pay more than the agreed amount there.

Who may qualify for a home improvement loan?

Individuals with consistent income, good credit scores, and well-managed finances get home renovation loans. However, no two borrowers get the same quote. It is because the circumstances, credit score, and cash need differs. Here are the basic home improvement loan eligibility criteria in the UK to consider:

Aspects	What loan providers look for	Who may qualify easily?
Age	Individuals aged 18-75 can consider a home improvement loan	Individuals within 75 years of age are not too old nor too young, but can manage repayments.
Credit score	The higher the credit score, the higher the loan approval chances	Individuals with a credit score of 600 or more may get a low interest rate on unsecured loans for renovations.
Employment requirements	Individuals with regular and handsome incomes get instant approval. The income criteria differ across providers.	Individuals with an annual income of  £10000 or above may easily qualify.
Debt-to-income ratio	Your debt-to-income ratio should be low to get a loan.	Keep your monthly expenses to 30-40% of your income.

Can I get an interest-free loan for green improvements?

Yes, you may get a loan for renovations without any interest implications. You may get a 0% home improvement loan as a private landlord, owner of empty property, or a low-income individual.  Some building societies and direct lending firms offer this as a promotional offer. So, you don’t need to pay interest costs until the advertising term ends.

Moreover, existing mortgage holders may get up to 20000 pounds for green home improvements like solar panel installations.  However, the amount must be used for green home upgrades only.

If seeking 0% interest on a home improvement loan in Wales/UK, you may get detailed guidance. It helps you fetch the right amount as an eligible homeowner in Wales. However, after the introductory period is over, you must pay interest costs.

How will a home renovation loan affect my mortgage or resale value?

Yes, a loan for house renovation may increase your debt, but it also improves your house’s resale value. It eventually improves your home’s Loan-to-value ratio and potentially helps secure better mortgage rates. 

However, the actual increase in the house’s resale value is not guaranteed. It instead depends on the market and quality of renovations. It is essential to balance the financial burden of the loan against the property value upliftment.

Here is the impact on the mortgage and resale value of a home renovation loan:

Impact of a home improvement loan on a mortgage	Impact of home improvement loan on resale value
Kitchen and bathroom can increase your home’s value and LTV	Most preferred home renovations, like solar panel installation, increase the home’s value. Getting a loan for that purpose may prove helpful.
You can remortgage to release more equity and secure a better deal on a higher property value.	The improvement in the value depends on the market and the current trends.
Informing your loan provider about the mortgage is important before carrying out improvements.	Loan providers generally approve projects that add to resale value.

How much can I borrow for home renovations online?

You can typically borrow £1000-£25000 on an unsecured home improvement loan, while secured loans may range from £10000 to £50,000. The amount you get on a collateral-based loan depends more on the asset value, the equity you share, and the lender’s criteria.

Individuals sharing over 70% equity in the property may get a high amount on homeowner loans. Similarly, the higher the asset value, the larger the amount you may get.  Thus, identify the current value of your property before staking it against the loan. Check how much the value may increase after making the necessary renovations. It will help you choose the right amount to borrow.

 The higher value of an asset helps you fetch cheap home improvement loans in the UK marketplace. It is because the asset seals any risks associated with your defaulting on the loan.

Other factors affecting the borrowing amount on a home renovation loan are:

• Affordability: How much can you afford to repay on the loan?
• Credit score: Individuals with a high credit score may get a higher amount than those with a bad credit history. However, a guarantor or a secured loan may help you there.
• Loan-to-value ratio: It is the ratio of the loan amount to the value of the property. You do not get more than your property’s value as a loan amount.

How much does a home improvement loan cost?

The cost of a loan for home improvement depends on factors like credit score, amount needed, interest rate, APR and loan fees. The fees may include basic costs like a loan arrangement fee, an establishment fee, early repayment charges, etc. Here is how much a loan may cost if you borrow £35000 for a kitchen cabinet renovation at an interest rate of 7.7%.  You can use a home improvement loan calculator in the UK to know approximate costs. Here is how charges may look:

Amount borrowed	£35000
interest	7.7%
Loan term	60 months
Monthly repayment	£700
Total repayments	£42,019

Here are the findings:

• Shorter repayments mean large monthly payments and low interest overall
• Longer repayment term: small monthly payments but high interest overall
• The lower the interest rate, the less you pay in total
• Secured loans have lower interest rates than unsecured personal loans

FAQs

. How to fetch the best home improvement loans?

A right loan for renovation is the one that helps you achieve your goals without exceeding the budget and has flexible terms. You can fetch the loan that meets your finances by:

• Improving your credit score
• You can compare home improvement loans online for the lowest rates
• Calculate the total loan costs and fetch the one with the lowest APR
• Read the agreement for alternative fees
  
  

. What happens if I miss or default on loan payments?

Missing or defaulting on a home improvement loan may affect your credit score, loan payment ability and overall financial well-being. The creditor may issue a CCJ in case of an unsecured loan. Alternatively, he may seize your asset under a secured loan.  It may make the situation difficult for you. Thus, contact the creditor early to get an alternative solution if you cannot repay.

. What are typical interest rates on a home renovation loan?

Typical interest rates on home renovation loans in the UK are 6.2-6.7% for large, unsecured personal loans. Alternatively, interest rates on secured home improvement loans range from 6%-14% and may vary according to individual circumstances.  You can check secured home improvement loan quotes if you wish to save money on interest costs.

.How long will it take to get funds in the account?

You may get the loan the same day or the next working day, depending on the process and the documents provided. Individuals providing accurate proofs with no delinquencies can get the funds within 24 hours.

. Should I choose Secured or unsecured loans for home improvement?

The type of home renovation loan you choose depends on your amount requirement, loan affordability, income and asset availability. If you want to get a low interest at a bad credit score, a secured loan will be helpful. Alternatively, if you can afford the loan payments with a good credit score, an unsecured loan will be right.