Compare Home Improvement Loans

A Guide To Home Improvement Loans

Home improvement is an essential part of keeping property in good condition. However, raising the required finances to fund such a project can present quite a challenge.

Keep in mind that some owners run busy schedules that hardly allow them to think about issues outside of their industries.

Here is a guide to help just about anyone raise the finances they may need and how to manage the whole project to get desirable outcomes.

The Benefits Of Home Improvement

  • Property Beauty

It is inevitable that after a while of existence any home is bound to lose its initial beauty. This may make it less desirable to people and as a result it may be difficult to sell or rent out.

  • Heightened Comfort

The home is one of the places that you can go to relax and have a good time. Home improvement can be a quick way to ensure that this little paradise offers the comfort that is fitting for you and loved ones.

  • Increases Space

The last thing you want is to live in a house that appears too crammed up with items. A few adjustments within the home may ensure that you create more space.

  • Adds Value

A casual talk with any property dealer will reveal how important home improvement is before offering it up for sale. Indeed, homes that undergo renovations are likely to be valued highly when compared to those that have had no improvement.

  • Energy Conservation

Some individuals opt to carry out home improvement to cut down on energy costs. Inclusion of glass windows or doors and installation of solar panels may be key to lighting the house naturally or powering several electronics. This can easily bring down the costs of electricity in the house.

  • Maintenance

Unless you carry out regular maintenance activities your home may not remain in good condition for long. Home improvements forestalls any major damages that may otherwise occur and lead to huge losses.

Planning Your Home Improvement Project

Once you have concluded that your home needs improvement you need to start planning.

This may involve talking to experts in interior design or construction. Such people will give accurate estimations when it comes to the costs that will be incurred on required materials and services.

At this stage you need to come up with a schedule for all activities and request written proposals from various service providers.

Its also important for you to come up with a budget that will help you manage your finances in the right way.

Consider Financing Options

With a plan of action in place, the next thing to think about is the way you will be financing your project. There are a variety of options for you to choose from including:

  • Cash

This method requires you to use your savings or income to directly finance the project. Experts advise against this method because it may end up leaving you vulnerable since you may be unable to pay for medical or other needs if your savings are used up.

  • Credit Cards

If your credit cards offer enough funds for financing the project you may go ahead and use it. The downside is that you are likely to have access to limited funds but still end up incurring a high amount with regards to the interest rates you are charged.

  • Home Improvement Loans

These are sometimes referred to as personal loans and can be sourced from many financial institutions.  It is worth pointing out that personal loans can be taken out for longer periods and provide higher amounts when compared to credit card limits.

They are easy to apply for although they may attract high-interest rates depending on the financial institution you work with and various other factors including your credit scores.

Where To Find Personal Loans For Home Improvement

  • Local Banks

Most people that undertake home improvement projects prefer getting their personal loans from local banks. It is worth noting that individuals that hold active accounts in the banks they apply to are more likely to secure these loans.

Before applying it is important for you to learn about the requirements or eligibility criteria.

  • Credit Unions

Credit unions are legally formed financial cooperatives that are run democratically. They are owned by members who meet at given times to formulate policy.

To secure a personal loan from such an institution one needs to be a member and meet the set eligibility criteria.

  • Peer to Peer Lending

This method requires you to submit your application to an investor who then accepts to finance your project if you can guarantee that you will pay the amount at an agreed interest rate.

Tips For Securing A Home Improvement Loan

  • Do Your Research

Before you apply to any of the institutions mentioned above it is important for you to do some research. Talk to people who have had the opportunity to improve their homes through loans.

Such people could be friends, relatives or colleagues who can offer tips and tricks to use. They may also give recommendations regarding some of the best financial institutions to work with.

  • Learn About The Eligibility Criteria

There is no need for you to submit a loan application only for it to be turned down because you did not meet one or more of the requirements that are stipulated.

Instead, take the time to examine each requirement and ascertain that you qualify for the loan.

Keep in mind that every time your loan application is rejected the result may reflect negatively on your credit score report.

Most financial institutions require you to be of legal age, have documents showing that you are the owner of the home to be improved and have a track record of debt repayment.

  • Know The Right Amount To Apply For

Most financial institutions will reject your application if the amount you are requesting is higher than your financial worth. In case you are unsure of the amount to request for it may be wise to seek expert help from a financial adviser.

Such a professional can examine your worth and provide accurate recommendations on what you should do to secure the loan you need.

  • Manage Your Credit Scores

Most financial institutions rely on your credit scores to evaluate if you are a good fit for a loan. To have a healthy credit score be sure to clear all balances on various credit cards.

Avoid opening multiple credit cards because they tend to lower your ratings.

It is also important for you to pay monthly bills on time.

If you notice any errors on your credit report raise the issue with relevant authorities so that correction can be done immediately.

  • Do Not Apply For Multiple Loans

Most people make the mistake of submitting multiple applications to several institutions.

You need to realize that financial institutions do their due diligence and in case they detect you have submitted other applications they are likely to decline your loan request.

  • Submit Application According To Instructions

Fill out any forms that you are presented with according to instructions. Always give accurate information and verify that all the details you have provided have no mistakes.

Secured loans

A secured personal loan is also known as a second charge mortgage. It lets you borrow a lump sum of money which is secured against a property.

The property is secured by the lender through a ‘second charge’, which ranks after your main mortgage (which is held on a ‘first charge’ basis). This is a legal arrangement that is registered with the Land Registry.

You can use the money for whatever purpose you want (provided that it is not illegal or for commercial gain). However, second charge mortgages are usually used to fund large purchases (such as purchasing a new car), home improvements, or to consolidate existing debts.

Throughout the term of the loan, regular monthly repayments must be made. The term of the loan can usually be between five and 25 years.

The Financial Conduct Authority (FCA) have been regulating the selling and administration of first charge loans for quite some time. The FCA now also regulates second charge loans. Second charge loans are subject to exactly the same rules as regular mortgages.  This implies that you will need to be able to prove that you can afford to repay both the first mortgage and the second mortgages, with some room to spare.

Who is a secured second charge mortgage suitable for?

Secured loans are for those borrowers with an existing mortgage who want to borrow larger amounts of money than what standard personal loans can offer, usually a maximum of £250,000. Borrowers tend to have established equity in their homes that they can utilise as security against the loan.

What should I look for when taking out a second charge mortgage?

There are some catches and things that you need to understand before you commit yourself to this kind of secured loan, including:

  • The ‘second charge’ on your property signifies that if you default on a secured loan, the lender can eventually take you to court and order the repossession of your property. The first charge lender gets to be paid back first, and the second charge lender receives what is left, up to the outstanding debt’s value.
  • Interest rates of second charge mortgages are usually variable, which means that it is difficult to budget as the rate could increase or decrease. If you also have a  variable rate mortgage,  you might be affected twice if rates rise, so make sure that you can afford it.
  • Consolidating debt is usually seen as the last resort of homeowners. However, it can be a great way to get you out of a hole in the short term. Remember, if you opt for lower monthly repayments in return for a longer loan period, you will end up paying more in the long term.

Compare Secured Loans

A Guide To Secured Loans & Homeowner Loans

Finance.co.uk compares top secured loans & homeowner loans for the best rates possible. If you are looking for the best loan provider, with low rates, read our guide to secured loans & Homeowner loans.

A homeowner loan, often referred to as a secured loan, provides a means of borrowing bigger sums of capital (normally at least £15,000) by using your home’s collateral equity to guarantee repayment. Secured loans are designed for people who have poor or non-existent credit ratings, because banks only must take a minimal risk.

There are several providers of these loans, whose rates frequently change, and low interest rates are offered to draw in new customers.

Typically, homeowner loans are paid back over a five to twenty-five year period, however longer loan terms might be available.

Often, it is easier to obtain these loans compared to personal or car loans, because lenders know that they can always get their money back.

Loans for Home Improvement

Some people opt to use secured loans to pay for expenses related to home improvements and renovations. For instance, you may wish to increase the value of your house by constructing a conservatory or extension. Also, you could use the money for basic maintenance to make the property more pleasant and comfortable.

Borrowers tend to take this route if they want to leave their capital reserves in place for emergencies, or if they need to update their home but lack the necessary funds.

Home improvement loan amounts vary greatly, based on the borrower’s credit file, the down payment size and the value of the home.

Things to Take Into Account With Secured Loans

Prior to applying for a secured loan, it is vital to gauge the affordability of the loan repayments. There can be many ramifications, if you do not keep up with your repayments.

It all depends on how far you fall behind, and it could affect your credit rating and – more crucially – your home ownership.

Secured loans come in different forms, and your personal situation will govern the conditions of your agreement. The variables that lenders look at, when assessing your application for a loan, include your credit rating, your salary, the level of equity in your home, and your current credit commitments.

The rate of interest they offer will be based on your credit rating, and your home might be subject to repossession if you default on your repayments.

Categories of Secured Loans

It is important to choose the right loan for your circumstances to reduce the cost as much as possible. There are a few different secured loan categories available. These are as follows:

  • Fixed for Term Loans

With these agreements, you pay the same amount each month over the period of the loan. This offers you the benefit of stable repayments, and means that you can budget for your monthly expenses.

  • Fixed Rate Short Term Loans

With these deals, you pay a predetermined amount each month over the fixed rate short term period (typically between twelve months and five years). Then, your repayments change to the lender’s normal variable rate. This means that your payment amounts could increase or decrease.

  • Loans With Variable Rates

The interest on these types of loans can alter, based on market moves or changes to the base rate set by the Bank of England. As a result, your monthly payments – and the whole amount you pay back over the loan period – could rise or fall. If interest rates increase, you might have to repay considerably more than you expected, or – in a worst-case situation – end up defaulting on your repayments.

Failing to repay will damage your credit rating immediately, and letters from lenders informing you of overdue payments are frequently billed to you with interest, as a penalty.

Happily, most legitimate lenders make less money from repossessing properties than having the debts repaid. If you might be unable to pay, or fall behind with your payments, tell the lender straightaway. Sometimes, they will agree to arrange a new schedule for repayments.

Additional Things to be Aware of With Secured & Homeowner Loans

  • Criteria for Qualification

Numerous loans have stringent qualification conditions, like residency and age (normally, you must be twenty-one to sixty-five years of age). Most of the time, you have to of lived in the UK for a few years, and have a stable income and current account.

  • Low Rates Advertised

Be cautious of headline grabbing rates. Legally, only fifty-one percent of successful loan applicants must be provided with these. Therefore, the remaining forty-nine percent could pay an alternative rate that is more costly, while others could be declined with a note entered on their credit history.

  • Capital Availability and Other Charges

Lenders might impose a charge for transfers performed on the same day. With standard transfers (normally a few working days), it is possible to avoid this charge. Read the conditions and terms carefully for other charges, like arrangement charges.

  • Penalties for Early Repayment

Certain lenders will penalize you if you pay back your loan early, to compensate for the interest they would have otherwise earned. The amount will vary, however it usually equates to a couple of months worth of interest, based on how soon you contact them.

  • Periods of Deferment

Some lenders provide ‘payment breaks’. Although these are useful during lean times, remember that you will carry on accruing interest, so the total repayment amount will rise.

Secured Loan Benefits

  • Easy Qualifications

Unsecured loans are typically cheaper for individuals with fair to excellent credit scores; however, as the name implies, secured loans offer lenders collateral, and therefore most loan companies are willing to offer such loans to consumers even if their credit is poor.

  • Large Borrowing Possible

£35,000 is the maximum unsecured loan, but secured loans can be acquired in amounts up to £2m or even higher depending on the lender.

  • Longer Terms

Secured lenders prefer lengthy loan terms, as arrangements of this type offset the initial setup cost of the loan, which can be quite expensive.

Therefore, the duration of such loans is usually anywhere between five and 20 years. Unsecured lending, on the other hand, is generally one to seven years, and although longer loans are possible to lower the monthly repayments, they also significantly increase the total interest repaid, as outlined below:

Applying for a Secured Loan

A consumer with a current home mortgage can apply for a secured loan provided the person has enough equity in his or her property to cover the borrowed amount.

If the client co-owns his or her property with another person, or if the client has a spouse or is in a civil partnership, a joint application is required.

Advantages and Disadvantages

Secured loans for homeowner loans can be acquired in any amount between £5,000 upwards, making them a good choice for those who desire a substantial loan.

Even though total borrowing costs frequently work out higher than just the borrowed amount and the interest, the headline interest rate on most loans will fall somewhere between five and six percent.

An additional benefit is that it is easier for your client to repay the loan, as the monthly payments are fixed.

The amount a client personally borrows through a homeowner loan depends on the person’s income, existing credit commitments, overall credit score, and the amount of the property’s equity.

Therefore, although lenders may offer loans of up to £100,000, only a fraction of that may be available to consumers who have low credit scores, too many loans already, or not enough equity in their property.

Like personal loans, the interest rate provided by the lender varies from one borrower to the next, based on credit. Additional disadvantages include repossession of property if the borrower defaults on the repayments. For this reason, most consumers are motivated to pay in a timely manner.

Secured Loan Alternatives

A popular example of an alternative to a homeowner loan is an unsecured personal loan of up to £15,000, running for a length of five years. With this option, the consumer can avoid placing his or her dwelling in jeopardy, and the loan may also feature a lower interest rate.

Borrowing more than £15,000 may present difficulties, however, if the loan is not secured. Therefore, the best option for those looking to borrow a large amount of money is re-mortgaging to free up some cash. Mortgage rates for consumers with lots of equity can be as low as two percent.

Nevertheless, the downside includes the possibility of high initial fees and paying interest on the entire amount owed for a longer length of time.

FAQs

  1. Can a client who does not live on the property apply for a secured loan?
    Yes, provided the person can prove the existence of a formal tenancy agreement.
  2. How do secured loans work?
    In simple terms, the borrower has a loan that is secured against his or her property’s equity. He or she is required to make regular repayments until the initial amount borrowed, as well as the accrued interest, is paid off.
  3. For Whom is a Secured Loan the Best Option?
    Secured loans are not associated with upfront fees, and are usually more flexible for those on benefits only or pension incomes, or who reside in ex-council houses.
  4. Self-employed clients without accounts
    Affordability checks have become tougher than ever before, and many banks now require as many as three years of accounts for income proof. However, certain secured lenders on the Clever Lending panel accept an accountant’s reference, tax return or bank statement as proof of income.
  5. The client has a complicated credit profile
    Secured loans are quite flexible about eligibility, and therefore they are a good alternative for clients who have had problems in the past acquiring credit. Even those with missed payments or defaults on their credit history may find the solution is a secured loan from Clever Lending.
  6. The client wants to retain his or her current mortgage arrangement
    The client may prefer to retain a current low or fixed mortgage that was previously acquired. Opting for a secured loan is one avenue through which to keep the current rate stable, whilst simultaneously raising capital.
  7. The client does not have enough equity for a re-mortgage
    The client may discover there are limited LTV (Loan to Value) lending alternatives available. Therefore, if he or she has little or no equity, the preferred choice may be a secured loan. Clever Lending can assist individuals to identify possible alternatives if this is the case.

Final Thoughts

Like financial products like bank accounts and credit cards, secured loan deals vary greatly.

Thoroughly researching the different loans on offer, instead of applying for the first advert you see, will improve your chances of paying a smaller amount of interest.

There are several free price comparison websites for secured loans, where you can input your property and credit information to see the most affordable lenders. This facilitates the process of locating the best deal for your situation considerably.

For a home improvement loan, you should ensure that the renovations will add utility and value to your property. If you need to borrow more than the likely market value of your house, this could be a poor financial decision.

Make use of comparable listings and other property resources to determine the value of your house before and after the updates.

It can be useful to create separate home improvement lists, to differentiate the things that you must do from the things you want to do.

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