How to finance home improvements?

Carrying out improvements or much-needed repairs on your home can lead to a whole range of benefits. Some repairs and improvements are unavoidable, of course, but others can have a hugely positive impact on both your day-to-day life, as well as the value of your property.

If you are ready to carry out some work on your home, but you are severely lacking in the savings department, you may be wondering how to finance your home improvements. Here’s the Moneyboat guide.

What’s to be gained through home improvements?

Investing in home improvements can change your life. From adding space or improving your living standards, to increase the value of your home by tens of thousands of pounds, there are many arguments in favour of stumping up the cash for improvements or renovations. 

Some of the main benefits of carrying out home improvements:

  • Adding value

Everyone knows that kitchens and bathrooms sell houses, so these are areas it’s always worth improving. However, did you know that you can add a great deal of value to your home simply by knocking down a wall and making your living space more open-plan?

  • Adding space

Once again, the more open-plan you can make your home, the more usable space you will create. Knocking down walls will give you a great return on your investment and really needn’t cost more than a few thousand pounds. 

  • Making your home more energy efficient

Improving your insulation, for example, can make a major difference to your utility bills over several years. You can also replace windows with double-glazing and block draughts and replace boilers to help keep your home warm.

  • Fixing areas that need attention

Nobody should have to live in a damp or substandard property. If you have structural or maintenance issues you’ve been putting off due to a lack of cash, maybe now is the time to look for some funding to sort these issues out.

  • Delaying the need to pay out for a move

Moving costs a LOT of money. There are lawyers fees, estate agent fees, movers to pay for and, of course, the dreaded stamp duty. If you can delay moving for a few years by making some simple home improvements, you can save yourself a significant dent in your wallet.

 Are personal loans the only way to finance my home improvement?

You may think that personal bank loans are the only way to fund your home improvements but think again. There’s a wide range of financing options available, secured loans, equity release, payday loans and even credit cards.

It’s all very well wanting to carry out home improvements, but how do you pay for them? Using savings is obviously the first choice, as this means avoiding the need to borrow. However, if you don’t have savings, there are plenty of funding options available – you just need to work out which choice is the best for you.

Some of the main financing options:

Unsecured personal loans

Personal loans are usually unsecured loans offered by high street banks or alternative lenders. Borrowers tend to take out loans worth between £1,000 and £25,000 and repay them over a number of months or years in equal instalments. 

Interest rates vary enormously, depending on the type of provider and your financial situation, including your credit rating. You will usually need to meet strict lending criteria to be able to secure a good rate on an unsecured personal loan as they are relatively high-risk products for lenders to offer.

Secured loans

Secured loans are those that borrowers ‘secure’ against a valuable asset, such as a property. Mortgages are a common type of secured loan. Borrowers will often be able to take out larger loans this way and may also be offered lower interest rates than for an unsecured loan.

Mortgages

This type of unsecured loan involves borrowers putting their home forward as security for a loan. Borrowing this way can be inexpensive, but missing payments could mean losing your home.

Equity release

If you have paid off all or most of your mortgage, and want to carry out home improvements, one option could be to release equity in your property in the form of a lifetime mortgage. This option is usually only available to those over 55.

Credit cards

A low-cost option for paying for some home improvements is a credit card with an ‘interest-free purchases’ period. These types of credit cards allow you to make purchases and pay no interest on the balance for a certain period of time. This can, in theory, mean free borrowing, providing you clear the debt within the designated period. After that, the interest rate usually reverts to a relatively high rate, which would not compare favourably with most other forms of credit.

Payday loans/short-term loans

For low-value home improvements, a payday loan can be a good option, providing you are certain you can repay the loan amount within the short time frame agreed. Payday loans can sometimes be easier to get than larger personal loans, as online lenders will take on a little more risk than high street banks. Loans are also much smaller in value.

For those who aren’t comfortable borrowing a loan that needs to be repaid in full on their next payday, they can opt for an instalment loan.

How do instalment loans work?

Instalment loans are short-term loans that are repayable over a number of months, usually in equal instalments. Instalment loans can usually be spread over up to around six months, helping more people afford the repayments. They can also prevent people from relying on traditional payday loans that absorb their entire next pay packet, leaving them with seriously depleted funds for the following month.

Will payday lenders provide funding for my home improvements?

Yes. Although many payday lenders will ask you what the purpose of your loan is, providing you pass the credit and affordability tests, you can spend your payday loan money on anything you like. Many borrowers use the money for emergency home repairs. For example, if an appliance breaks down, your guttering comes loose, or a window breaks, you probably can’t wait until your next payday to get it fixed. 

Some other home improvement a small loan could help to finance:

  • Redecorating a room
  • Plastering
  • Soft furnishings
  • Deep cleaning at the end of a tenancy/before a move
  • Clearing a fireplace
  • Boosting insulation
  • Freshening up your outdoor paintwork
  • Sprucing up your garden
  • Upholstery
  • Installing shelving
  • Improving/fixing plumbing issues
  • Unblocking drains
  • Restoring old furniture/features

Remember that short-term loans are rarely a cheap way to borrow, so make sure you consider your alternatives before taking one out. Also, make sure you borrow with an FCA-regulated lender to ensure they carry out the right levels of credit and affordability checks on customers.

Do 12-month payday loans exist?

Longer-term payday loans, in the form of instalment loans, do exist, but you will often pay out more than a shorter-term option, over the lifetime of the loan. Paying off the loan over fewer instalments will usually result in a lower-cost loan, in terms of interest charges applied. However,  you will need to be able to afford the higher monthly repayments. Pay over more  instalments and you pay less each month, but the cost of borrowing will usually be higher overall.

Looking for a direct lender loan with Moneyboat?

Warning: Late repayments can cause you serious money problems. For help, go to moneyadviceservice.org.uk

Representative Example: Borrow £400 for 4 months, four monthly repayments of £197.48. Total repayment £597.48, interest rate p.a. (fixed) 255.5%. Representative APR 939.5%. Compare Moneyboat loans.

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