A Guide to Finding the Right Loan for Home Improvements

As well as being your home, your house is an investment for your future. Whether you plan to live there for the rest of your life or take advantage of rising house prices, keeping it modern and in a good state is essential.  If you decide to sell your house, achieving the highest sale possible usually requires time and a home improvement loan. There are several options on the market when it comes to home improvement loans, and making the right decision for your personal circumstances could save you a lot of money in the long run.

Unsecured or Personal Loans

Whilst there are hundreds of personal loan products on the market today, peer-to-peer lending is proving to be one of the fastest growing. Banks are incredibly wary about lending since the banking crash of 2008, which has left many people either putting off home improvement plans or taking out expensive loans they can’t afford. Peer-to-peer loans involve an agreement between an individual lender and a borrower – which keeps costs down. A peer-to-peer platform will ensure that the agreement is arranged according to UK law, and in many cases, the funds can be released within 3 working days.

With interest rates from as low as 5.3 percent, peer-to-peer low rate loans are cheaper than many of the finance products currently being offered by the UK’s high street banks. They usually don’t involve early repayment penalties, which means they are a cost-effective means of adding value to your property. And at a time when consumer credit is so expensive, this is a great source of relief to homeowners up and down the country.

Unsecured loans are sometimes more expensive than those secured on property, however due to the additional setup costs of a secured loan, secured loans can in fact have a higher rate. The qualifying criteria for an unsecured loan are usually strict, yet for small projects that require less than £15,000 an unsecured loan may be the best option – especially if you want to sell your home with the minimum of fuss in the coming years.

Secured Loans

A secured loan is one that involves putting your property forward as collateral. This means that, should you default on repayments, you risk losing your home. While this risk remains until you have repaid the loan in full, securing credit against your property usually reduces the risk borne by the lender – ultimately leading to lower interest rates.

How much you can borrow for home improvements via a secured loan will depend on several factors, including your credit history and your ability to make the monthly repayments. Another critical factor involves the equity in your property, which is the difference between its current market value and your outstanding mortgage. One of the main benefits associated with choosing the secured option is the fact that you can spread repayments over a term of up to 30 years – instead of the usual five associated with unsecured loans.

A lot of building societies and banks are happy to lend money that will ultimately increase the value of the property the loan is secured against. But what happens when you don’t own your own home, you don’t have enough equity to secure your loan or you don’t want to risk your home by using it for collateral on finance? An unsecured loan may be the only option you have, and some are cheaper than others.

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