If you’re one of the growing number of people who have made the decision to carry out extensive renovations in your home rather than move, you may be considering taking out a loan to cover the costs. Here, Philip Garlick, from loan specialists H&T, discusses the considerations you need to make before applying for finance.
For many people, choosing to renovate rather than relocate is often a great decision. After all, if you’re quite happily settled in your home and just need some extra space or functionality, carrying out some home improvements can be a less stressful solution to moving.
In the UK, renovations remain a very popular choice, with 57% of homeowners carrying out work on their property in 2017, according to a study by Houzz. However, the same research found that the median spend on projects for the year was £15,000 per household, which can be a hefty price if you haven’t budgeted well in advance.
This is where a loan can be very helpful, allowing you to finance your project and pay off the sum over subsequent months. But, applying for finance is a big decision, and one you shouldn’t take lightly. To help you out, I’ve listed a few key considerations you need to make to ensure you get the right loan to suit your needs.
Find out how much you need to borrow
Firstly, you will need to get a few quotes to price up the job and get a good idea of how much your renovation is going to cost. Don’t be afraid to shop around for the best price but remember some builders will do better work than others. As a general guide, the Federation of Master Builders recently advised you should expect to wait around four months before a quality builder can begin..
You’ll also need to think about how much of the total cost you’ll need to get a loan for. Saving up a portion of the money and taking out a loan for the rest always makes more financial sense than taking out a loan for the whole amount. Try to calculate the amount of cash you can put towards the bill yourself before deciding on a loan amount.
Know your credit score
Getting an unsecured personal loan will involve passing a credit check, so you need to ensure yours is up to scratch before applying. Trying to get a loan with a low score will not only likely result in a rejection, but any failed application is added to your record, worsening your score for the future.
The best way to stay up to date with your credit score is to use a company like ClearScore, a service that provides you with monthly updates so you can see if your rating improves over time. It’s offered by Equifax, one of the UK’s largest agencies.
Compare interest rates on loans
Any loan provider is required to provide you with an annual percentage rate (APR), which accounts for the interest you’ll pay, as well as the other costs of applying. This allows you to calculate exactly how much the loan will cost you over its term, which is a key figure when you’re determining whether you can afford the repayments. Take the time to shop around for the best rates, as a lower APR will cost you less in the long-run.
Think about a suitable loan term
Another aspect of any personal loan you’ll need to consider is the loan term, which is the length of time you will pay back the amount, plus interest. Typically, if you choose a deal that offers a longer term, you’ll have lower repayments each month, but you’ll need to make more of them, which means they will be subject to more interest.
Thanks to this, long term loans are generally pricier than those with shorter terms, so you’ll need to consider whether you can afford the higher monthly payments if you want a cheaper deal overall. Aim to find the balance between a long- and short-term that suits your own needs.
Plan a budget for your repayments
Once you’ve found a loan that meets your requirements, the final step before applying is to map out a budget for your repayments, ensuring you’ll be able to comfortably afford your renovation.
Take into account what you currently spend each month and any upcoming one-off expenses you know of, then compare it to what you have incoming. If the difference can comfortably cover the repayments on your loan, you shouldn’t have too much trouble. If you can’t, you might need to cut down on any non-essential spending or re-think your plans.
Take these considerations into account when you’re thinking about paying for home renovations with a personal loan and you’ll be best placed to get the right deal.