Should you apply for a home improvement loan?

If you are thinking about applying for a home improvement loan there are a number of factors you need to consider very carefully. Most importantly, if you want to make energy efficiency improvements check the availability of government grants before you do anything else. You could qualify for a grant that meets all, or some, of the costs.

If you do need to consider borrowing, you should first make sure the works you plan to carry out meet the criteria banks and building societies set for home improvement loans. A home improvement loan is not for new decor: it’s for the likes of double glazing, extensions, new kitchens, new bathrooms, garages, new central heating systems and loft conversions.

You also need to find out how much value the works will add to your home. If the increase is negligible then you are simply spending money rather than making an investment, and you should calculate your finances accordingly.

The interest rates charged by banks and building societies will vary. The rate you are quoted will often depend on your financial circumstances, and sometimes being a new customer will make a difference too. It’s vital to research terms with as many different banks and building societies as possible. Don’t forget, there are a number of high street stores and supermarkets that offer banking services.

Other lenders also advertise home improvement loans, but as they tend to cater for people who have failed to obtain a loan from a bank or building society the rates of interest will be much higher.

If you’re not eligible for a home improvement grant, and you decide you don’t want to take out a home improvement loan, there are still alternative ways to fund your project.

Savings

If you have a pot of savings, you should consider the benefits of spending it on the works you have in mind. Aside from the obvious benefit of avoiding debt, you may also be able to consider the money as an investment in your property. However, many people want the security of a source of money to cover emergencies and unexpected expenses. So you need to decide whether you’d prefer to avoid debt or keep your rainy day fund.

Remortgaging

Remortgaging might be a sensible option if the works you have in mind are going to cost at least £15,000. The benefits of a secured loan are the lower interest rates, and the fact you will be able to repay it over a longer period of time. If the improvements you plan to make will increase the value of your property, and the higher repayments are manageable, then remortgaging could be the right choice for you.

Equity release

For those over the age of 55, who have paid or almost paid their mortgage, equity release could be a route worth exploring. But this is a major decision and the pitfalls can have a shattering impact on your finances. You should research this option fully, and take expert advice, before making a decision.