What is a home improvement loan?
A home improvement loan allows you to borrow a set amount in order to fund home renovations to your property. This typically comes in the form of an unsecured personal loan, but you can also secure the loan against your home, which normally allows you to borrow larger amounts.
Home improvements, such as a new kitchen, bathroom or adding an extension, not only add space for your growing family but can also add significant value to your property if you decide to sell it in the future. For example, converting your garage into extra living space could potentially add 20% to the value of your home.
What are the different types of loan for home improvement?
There are two main types of home improvement loan to consider:
Unsecured home improvement loan
Also known as an unsecured personal loan, this type of loan allows you to borrow without putting up an asset, like your car or house, as security.
As approval is based on your ability to pay back the loan, lenders will want to check that you have a good credit history. They may also want to confirm your employment status. A secure job will reassure lenders that you have the means to pay back the money.
If you’re planning to spend around £6,000 to £10,000 on a smaller project, such as updating your kitchen, an unsecured loan might be a good way to get the money you need. However, there are a few things to consider:
- Although you won’t risk losing your house with an unsecured loan, failure to make payments could bring a County Court Judgment (CCJ) against you and seriously damage your credit rating.
- As there’s no collateral as security, you might not be able to borrow as much as you would with a secured loan.
Secured home improvement loan
Also known as a homeowner or home equity loan, this type of loan allows you to borrow a larger amount of money using the equity or the value of your home as security. Depending on your credit history and financial situation, you might be able to borrow up to £100,000 with a secured home improvement loan.
This type of loan is suitable for major renovation projects, such as taking on an old house that needs structural repairs and complete modernisation. Interest rates are often lower and fixed over a longer period, which helps with budgeting.
However, with a secured loan you need to consider:
- Your house could be repossessed if you fall behind on repayments on your secured loan.
- Some lenders might impose a penalty if you try to pay back your secured loan early.
Why it’s important to consider how much money you need
Knowing how much you need to borrow will help you decide where best to find that extra cash injection.
- If you only need to borrow a small amount of money for a very short time, consider using your interest-free overdraft, if you have one. If not, it could be worth looking at different current accounts that offer this facility.
- Credit cards with 0% interest on purchases could be worth a look, particularly if you need to buy something specific. As long as you pay back what you owe within the interest-free period (and make at least the minimum monthly payments on time), you can be smug in the knowledge that the credit hasn’t cost you a single penny extra.
If you need a larger sum of money, a personal loan could be the answer. You can usually opt to borrow a minimum of £1,000, with upper limits depending on the lender. Most will lend you up to £25,000, although some may go as high as £50,000.
The best APRs (annual percentage rate – this is the amount of interest, plus any fees, you pay on top of your loan) are reserved for customers with the best credit ratings. That’s why when you apply for a loan, you need to know that the APR you see might not be the one you get, unless it’s labelled as a guaranteed rate.
Should I choose an unsecured or secured home improvement loan?
The kind of loan you choose will depend on your circumstances, preferences and how much you need to borrow.
- Up to £25,000 – an unsecured personal loan could be enough to cover the costs of your home improvements up to this amount. With this type of loan, you can borrow a lump sum of money (if you’re approved) without putting up anything that you own as security.
- Up to £100,000 – a secured homeowner loan could be the answer if you’re planning an extension or major renovations. With this type of loan, you can borrow a lump sum of money against your property. You run the risk of having your home repossessed if you fail to make the repayments.
You’ll also want to think about:
- Your credit rating – if you’re a homeowner with a less-than-perfect credit history, you’re more likely to be approved for a secured loan than an unsecured loan because your house can be used as security.
- How quickly you want to pay back the loan – homeowner loans typically offer longer repayment terms than unsecured personal loans.
Why a home improvement loan may be right for you
According to Compare the Market research, 32% of homeowners are planning some form of home renovation. If you’re one of them, a home improvement loan could help.
By providing you with the money you need up front, you can get on with making the improvements your home needs, while having the flexibility of paying the loan back over an agreed period of time.
Home improvement loans offer the following benefits:
- Quick access to your money – once approved, you could have the money for your renovation project in your bank account within days – in some cases, even 24 hours.
- A loan with fixed interest rates helps you to budget for your monthly repayments.
- You can choose the period over which you pay back a home improvement loan. The repayment period can range from one to seven years, or even longer.
- You can choose the amount you want to borrow. But always be sure that you can afford the monthly repayments.
- You can choose how you spend your money. In most cases, you don’t have to specify what you want the money for. For example, if you end up spending less on a home improvement project, you might want to use the remainder of the loan money for something else.
What should I consider with a home improvement loan?
- Your budget: when you’re considering how much to borrow, think carefully about the cost of your project. Home renovation can involve unforeseen issues that mean you can overshoot your original budget.
- The interest rate: loans can have a variable interest rate – so the monthly payments could go up or down. And if you've also got a variable rate mortgage, you could get hit twice if rates go up.
- Early repayment penalties: some lenders will charge you for paying off the loan early, so read the small print.
How can I find a home improvement loan?
The good news is that it’s easy to compare different home improvement loan rates.
Our loan comparison page lets you look at the options for both unsecured personal loans and secured homeowner loans. You can search based on:
- how much you want to borrow
- how long you want to repay for
Frequently asked questions
Why make home improvements?
As well as giving you a better living space, home improvements can help increase the value of your property – provided they’re done properly.
To give you a rough idea, a loft conversion could add up to 15% to the value of your home, while updating your kitchen or adding a new bathroom could increase the value by up to 6%.
If you live in an area where parking spaces are in short supply, creating off-street parking with an attractive driveway could add up to 10% to the value of your property.
Find out more about home improvements that could help increase the value of your home.
How much do home improvements cost?
Obviously, it depends on what you have done. Apart from the work itself, there are other costs to factor in, including getting planning permission (if you need it), building regulation fees and architect’s drawings.
To give you an idea with some ballpark figures, a basic loft conversion could cost around £16,000 to £20,000, while a new bathroom could range between £2,000 and £7,000, depending on the quality of the fixtures and fittings you choose.
What are the disadvantages of a home improvement loan?
When borrowing money, you should always consider the risk to your finances and credit score. Here are some of the most important things to think about:
- Penalties – be confident that you can make the repayments on time, otherwise you’ll likely to have to pay a penalty.
- Home repossession – if you secure your loan against your property and fail to keep up with your repayments, the lender may repossess your home and sell it to recover the debt.
- Interest rates – are you comfortable with the amount you’ll have to pay each month? Unsecured loans typically come with greater rates of interest than secured loans.
Can I get a joint home improvement loan?
Like many types of loan, you may be eligible for a joint home improvement loan. You’ll both be subject to the standard credit checks, so it’s important to know that you each have a strong enough credit rating. As a pair, you may be eligible to borrow a larger amount.
Can I get a home improvement loan with a bad credit score?
Having a poor credit history doesn’t necessarily mean you can’t get a loan. It just means you may have less choice and potentially face higher interest rates.
What are the alternatives to a home improvement loan?
If you’re refused, or simply want to avoid a home improvement loan, there are some alternatives to consider:
- Remortgage your home – by releasing some of the equity from your home, you may be able to borrow more from your existing mortgage lender.
- Further advance on your mortgage – available from your mortgage provider as an additional loan on top of your mortgage, if you haven’t already borrowed the maximum amount available to you.
- Credit card – best suited to smaller amounts that you can repay quickly, you can find credit cards that offer 0% interest rates for an agreed period, which may be an ideal alternative for your home project.
How can I compare home improvement loans?
To find a great home improvement loan quickly and easily, simply try our comparison service.
Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.