If you’ve been dreaming about your home improvement plans, you’re probably wondering about how to fund them. There are numerous ways you can consider financing your home renovations. It’s essential to think carefully about which method works best for you and your circumstances; choosing the wrong way to fund home renovations could be an expensive mistake! Here, we’ll run you through the options.
Funding home renovation with your savings
When possible, using cash is usually the most straightforward way to fund your home improvements. Consider setting up a specific savings pot with an established budget for your renovations. Using money that you’ve deliberately saved allows you to start your home improvements as soon as you’re ready. Unlike other funding options, you won’t have to wait for the money to come through. You also won’t have to pay interest and fees, or worry about meeting loan repayments when using savings.
However, if financing your home renovation will drain all your funds, or you don’t have enough saved to fund your project, don’t worry. There are plenty of other finance options for you to compare.
Funding home improvements with a credit card
Applying for a credit card could be a suitable option, especially if your renovation project does not require too much money. Most banks offer credit cards that you pay off at the end of each month. For smaller projects, financing through a credit card is generally cheaper than getting a loan. Some lenders even offer customers interest-free credit cards and rewards, like cash-back bonuses or airline miles. Getting funds with a credit card is also quicker than using a loan.
In any case, to be accepted for a credit card, you will need to have a good credit score and financial history. As with all forms of credit, there are risks involved. You may end up spending more than you can afford to without realising. This can make it difficult to meet repayments on time, and you may incur high-interest fees or late payment charges! Most credit cards also come with an additional annual cost.
Using an unsecured loan to finance home improvements
Unsecured loans are a preferred source of credit because they do not risk losing your home or possessions. Unsecured loans are not tied to a piece of collateral. This means that a lender cannot claim any assets if you default.
However, you can’t borrow as much with an unsecured loan, usually up to £50,000, and you will need a good credit score and steady income to be accepted. Unsecured finance also tends to have higher interest rates and less flexibility. It is often not possible to renegotiate your payments or make early payments without being fined.
Getting a secured loan to fund renovations
Secured loans are collateral loans taken out against something you own, typically your car or home.
This means that your assets are at risk of being repossessed. Lenders will need to evaluate your collateral before approving your loan request, and this may cause delays.
On the other hand, secured loans are reasonably flexible and offer low-interest rates. You can usually renegotiate the terms of your loan or pay debt early without receiving a fine. A secured loan is also a suitable finance option for homeowners with a poor credit score. Typically, you can access up to £100,000 for more extended periods. And, repaying your secured loan on time can even improve your credit score!
Remortgaging for home improvements
Remortgaging may be the right option for you if you are planning a large-scale renovation or building an extension. Borrowing against your home’s equity will allow you to borrow more money. Remortgaging may also provide a better interest rate and let you combine your debts into a simple single monthly payment.
Unfortunately, it can be challenging to remortgage, and lenders may take time to accept your application. Don’t forget that remortgaging will significantly lengthen your mortgage timeframe. And the most considerable risk of all, your home can be repossessed if you don’t pay on time!
