Renovating your home is one of the most important investments that you can make over the course of your life. Unfortunately, it can also be extremely expensive. In many cases, it may cost so much that a personal loan would simply not allow you to borrow enough money to cover the cost. In order to solve this issue, a large number of banks and other private lenders have started offering home improvement loans. These are forms of credit that are designed especially for home improvement and renovation projects. As a result, the money that you borrow will be restricted to this purpose.
This having been said, there is more to a home improvement loan than meets the eye. The fact that they allow you to borrow large amounts of money means that the lenders tend to be very careful when it comes to who they offer these loans to. Here is what you need to know about how these deals work:
You need collateral in order to get a loan
Home improvement loans can last for 5-10 years and have a value of between £1,000 – £25,000. When it comes to their terms and conditions, these deals are very similar to general-use secured loans. As a result, they also require collateral. Depending on the lender, you may be able to offer your home, your vehicle, or another property as collateral.
This means that if you are unable to make the monthly repayments, at any point in time, the lender can take possession of your property. However, this rarely happens due to the fact that lenders prefer to recover their money, rather than process your property (which is often expensive and time-consuming).
When it comes to collateral, it is also possible to use the equity that you have in your home in order to guarantee the loan. It is also possible to use the equity that you may have in a different property, making the loan extremely flexible.
A home renovation loan gives you some wiggle room
Home renovation loans allow you to borrow large amounts of money which can be extremely useful if you want to flip your home or need to repair serious structural damage that does not have a clear cost.
In terms of repayment, if anything happens and your income drops, most lenders will either agree to give you an extension or to refinance the loan and offer a smaller interest rate that will help reduce the cost of the debt. Keep in mind that most lenders will allow you to make overpayments without having to pay any fees.
What alternatives are there?
The only alternative that you have when it comes to home renovation loans is getting one or more personal loans. However, you must keep in mind that personal loans, especially if they are unsecured, will only allow you to borrow a limited amount of money. While it is possible to take out multiple personal loans, doing so can have a negative impact on your credit rating and may also increase the interest rate of each subsequent deal that you need to sign in order to get all the financing that you need.
Choose the option that best fits your needs
If you are unsure which type of loan to take out, you can start by assessing the total cost of the renovation or improvements. Once you have a rough estimate, look at how much money you can borrow using a personal loan and determine if one or two would be enough to pay for the entire project. If the price is greater, you may want to consider getting a secured home renovation loan.