As a homeowner, the time may come when you want to take out a loan for refurbishments or repairs. Some will do this to increase the value of their property whilst others may just want to mix things up. When you begin to compare loans, it is important to assess what your reason is for the loan because that can affect how much risk you are willing to take on. This page will guide you through the different options you have when it comes to home improvement.
Secured loans are loans taken out which are secured against an asset, most typically your home. These loans are often long term and for a large amount of money. They are called ‘secured’ because they give the bank or the building society the ability to repossess your house or other valuable asset is you fail to make the payments. However, this means lenders have the ability to offer lower interest rates over a longer period as they see them as low risk. These loans are generally used by people without a good credit rating who are looking to take out large sums of money.
Personal or ‘unsecured’ loans are simple and quick loans taken out with a lender with a pre-approved payment plan. These loans are often short term and for a small amount of money, and do not require you to put your house up as collateral. They are commonly referred to as personal loans because they are for your own personal spending and therefore do not have to be for a specific project. These loans are generally used by people with a good credit rating looking for small sums of money.
If you only require a small amount of money, it may be better for you to pay for your home improvements with a credit card rather than a full loan. Many credit card companies offer 0% interest for an extended period of time on your larger purchases. Therefore, you have the option to refit your kitchen or your bathroom on a credit card and pay it off directly. Ultimately, credit cards work best if you know that you can pay it off quickly. Before you use a credit card you will still have to do credit checks and you will need to make sure a lender is prepared to give you a low interest card.
Similar to credit cards, authorised overdrafts can be a good option for those looking to make small home improvements. These can be done with your bank and are typically much cheaper than taking out a loan, having to pay just a small fee every month. However, when taking an overdraft, you must make sure it is authorised, meaning you have to contact the bank before you spend the money. They will then decide how much they are willing to let you have based on your credit history.
Find out which loans you could be eligible to take out, without affecting your credit score