Can You Use an Unsecured Loan for Home Renovations?

Yes, you can use an unsecured loan for home renovations. In fact, these loans have been designed to help people meet large expenses. Home renovation is among them.

What is an unsecured loan?

An unsecured loan is a personal loan. It enables you to borrow a lump sum of money that you pay down over a period of months in fixed instalments. Unsecured loans are subject to fixed interest rates, making monthly payments the same throughout the loan term.

• Unsecured loans make payments manageable as the cost of a home renovation project is spread across months.
• Subprime borrowers can also apply for these loans.
• Personal loans can ameliorate your credit score if you make payments on time.

When does an unsecured loan make sense for home improvements?

An unsecured loan for home improvements makes sense when you need money to fund small and medium-size project. As long as you are borrowing between £1,000 and £25,000, you can find these loans a reliable option. If you need more than that, you will need to put down your house as collateral.

Interest rates for unsecured loans remain fixed, so you can easily make a budget around payments. There is no risk of losing your house in case you miss a payment. However, you will be charged late payment fees and interest penalties.

Which home renovation projects can you finance?

The following are the renovation projects that you can finance with personal loans:

• Kitchen upgrades such as new cabinets, countertops, flooring, and appliances.
• Bathroom remodelling includes plumbing, replacing an old toilet seat, washbasin, tiles, and bathtub.
• Ceiling and roof repairs and loft conversion
• Energy efficiency improvements such as installation of solar panels, heat pumps, and double-glazed windows.
• Wall painting and interior decoration
• Adding a new room

Who is eligible for an unsecured home improvement loan?

In order to be eligible for an unsecured loan, you need to meet the following criteria:

• You should be an adult. Underage people cannot apply for a loan.
• You must have a steady source of income to demonstrate that you can repay your debt.
• You must have a good credit history.
• You must be a UK resident.
• You must have an active bank account.

As proof of regular income, you can show payslips, pension, and income from your business.

Unsecured loans for bad credit people are available, but they come with high interest rates.

Benefits of using an unsecured loan for home renovations

Here are the reasons why unsecured loans could be ideal for funding home renovation projects:

• No collateral requirement

Unlike secured loans, lenders cannot repossess your house as it is not pledged against it or any other property. However, missing payments is still not recommended. They have consequences.

• Quick approval

Accessibility to funds is quite fast. Applications for personal loans are processed within two to three days. Once they are approved, money is disbursed within a few hours.

• Manageable payments

Most unsecured loans come with fixed interest rates. Monthly payments remain unchangeable throughout the loan tenure. You can easily adjust your budget around payments.

How much can you borrow with an unsecured loan for home renovations?

You can borrow between £1,000 and £25,000 to fund your home renovation project through unsecured loans. However, it is not set in stone that every lender will let you borrow up to £25,000 without collateral.

Every lender has their own policy. Some lenders do not lend more than £15,000 without collateral. To some extent, it also depends on your credit profile. You should have a very strong repayment capacity if you want to borrow a larger sum without collateral.

Can you get an unsecured home improvement loan with bad credit?

Yes, you can obtain an unsecured home improvement loan with bad credit, but interest rates will be quite high. The APR for unsecured loans range between 9% and 49.9% depending on your credit score. The poorer your credit score is, the higher the interest rate will be.

Alternatives to an unsecured loan

If you fail to secure a personal loan for home improvement, you can consider the following alternatives:

• Remortgaging

Refinancing your existing mortgage will help you release equity. The new mortgage will not only include a greater sum of money, but it will also help you obtain a revised repayment term and lower interest rates.

• Second charge mortgage

If you do not want to remortgage, you can take out a new loan against the equity in your home. This new loan will also be secured against your house alongside your main mortgage. Interest rates for a second charge mortgage will be higher than remortgaging.

• Credit cards

Be informed that credit cards are recommended only when the cost of renovation is small. For instance, you need money to repair leaky faucets. Use credit cards only when you are absolutely certain about the bill settlement at one shot.

Tips for managing a home renovation budget

Here are the tips for managing a home renovation budget:

• First off, you should break down the costs. Separate the cost of labour, materials, fixtures, consultation, and waste removal. This will help you know what to include and what to exclude.
• Make sure that you get the quote in writing. Consult different experts and compare their prices.
• Plan for extra costs. Sometimes, you may come up with something unexpected, which will increase the total charges. Your budget has a buffer.

The final word

You can use an unsecured loan for home renovation, but these loans come with high interest rates. It is vital that you consider these loans only when you are sure about your repayment potential. If it costs you beyond your affordability, try borrowing less than you need.

FAQs

Is an unsecured loan better than remortgaging?

Unsecured loans are better for short-term renovation projects, while remortgaging is ideal for funding long-term refurbishment projects. Unsecured loans allow fast approval without any risk of losing your property. Collateral loss risk is high in case of remortgaging, but it charges lower interest rates. Both types of loans are ideal for different types of projects.

Can tenants use unsecured loans for home improvements?

Tenants are authorised to make any improvement in the house. If there is any issue like a leaky ceiling, they need to report it to their landlord, who will get it fixed.

What is a green improvement loan?

A green improvement loan is aimed at helping homeowners who want to make energy-efficiency changes such as installation of solar panels, double glazing, insulation, etc. These loans are also unsecured loans, but they are available at lower interest rates.