When deciding to carry out work to improve your home, sooner or later you have to consider the costs involved. Often that will then lead you to the question ‘are home improvement loans worth it?’.
The answer will depend on a number of factors, not least your own personal circumstances and the size and terms of the loan that’s required.
When Using Home Improvement Loans May Make Sense
Although we cannot say with absolute certainty when it may be right to use a home improvement loan, there are a few circumstances where it’s more likely to be the correct thing to do.
For example, when you don’t have any savings but the improvements you want to make are essential works such as those related to subsidence or damp that will only get worse if not rectified.
In that situation, you may not have much choice but to take out a loan to pay for the work. Make sure you check your home insurance documents first though as it’s possible the work is covered under your policy.
Another situation where a home improvement loan may be worth it is when you want to carry out work to improve your home and increase its value by more than you borrow (including interest). Check with an estate agent first, but if you are sure the work will add value then it may make sense to take out a loan to get the job done.
This is especially true if you are about to sell your property and so will be able to recover your expenditure and pay back your loan as soon as your property has been sold.
You can read our guide to the best ways to add value to a property, it’s written from the point of view of investment properties but is actually true for any type of home.
When NOT To Use Home Improvement Loans
You should avoid getting loans to cover home improvement projects if you are already struggling financially, at least not without first discussing with a financial advisor to ensure you can afford the repayments.
If you have savings available, it’s usually best to make use of them rather than taking out a loan. After all, there’s little point in paying interest to borrow money that you don’t actually need.
If you are expecting to move home soon and the home improvements you want to carry out are unlikely to add more in value to your property than you have spent, it’s not usually a good idea to take out a loan. In fact, in this situation, it’s probably not worth carrying out the work at all!
Finally, if interest rates are sky high, then it may not make financial sense to take out a home improvement loan. At least not yet, anyway, interest rates are forever going up and down so sometimes it pays to wait for rates to fall.
Ways To Borrow Money For Home Improvements
Remortgage – If your home is worth more than the amount you borrowed on your mortgage, you may be able to acquire the money needed by remortgaging your home. This would mean your monthly mortgage payments will go up to cover the extra money you have borrowed, but it can be one of the easiest ways to borrow money for home improvements.
Bank Loan – If you have a reasonably good credit rating, lending the money from a bank may be a viable option. Start off by checking with whoever you bank with and then compare them to what’s on offer elsewhere. You’ll need to check the interest rate on the loan and work out how much you need to borrow and over how long you will pay it back. This can be an expensive way of lending money so always make sure you can afford the repayments.
Loan From Supplier – Depending on the type of work you want to carry out, the supplier may offer you a loan in the form of interest-free credit or by paying in instalments. These are usually nice and easy to arrange but rarely have competitive rates so you would be better off shopping around to see if you can borrow the money elsewhere more cheaply.
PayDay Loans – Using short-term loans is rarely recommended due to the insanely high interest rates that come with them. When it comes to using payday loans for home improvement projects, it almost NEVER makes sense. Unless your house is about to fall down if you don’t carry out the work and you’ve exhausted all other loan options, payday loans are best avoided.
So, Are Home Improvement Loans Worth It?
By now, you should now be able to answer the question ‘are home improvement loans worth it?’. For most people, the answer will be that yes, they are, but only in certain circumstances. It’s up to you to decide what’s best for you.
If you need help making the decision, please do consult with a professional financial advisor. None of the information above should be treated as financial advice.
Decided to go ahead with your home improvement project? Don’t forget to read our guide on how to hire a skip.