Renovate smart: How to choose the right home improvement loan?
Renovating your home requires attention to detail and perfection. All this needs financial investment. But using all your savings for this one purpose can never be wise. Why not choose a loan option that meets the needs of all types, such as home improvement loans?
What are home improvement loans?
A home improvement loan is a specialized loan product designed to manage relevant expenses. These can be renovation, upgradation, and improvement. The loans offer funds for a wide range of renovation needs, from small repairs to major expansion projects.
Why consider a home improvement loan?
For the following reasons, you can choose to rely on loans. They will offer you many benefits, both directly and indirectly.
- Boost property value: Renovations increase your property’s value, making it easier to sell the house at a profit.
- Immediate access to funds: Loans are available online with instant approval, especially if you choose an online lender.
- Flexible repayments: Pay weekly or monthly, depending on your repayment ability and the lender’s policy.
- Better energy efficiency: There are improvement loans for energy renovations that receive government subsidies.
- Avoid depleting savings: Why spend your precious savings on one purpose? What about other emergencies? Choose these loans.
Types of home improvement loans
As per your preference, you can choose from various loan options for your home renovation needs.
a) Unsecured personal loans
Banks and online private lenders offer these to help you borrow a fixed amount that you repay over a set period.
| Pros | Cons |
|---|---|
| No collateral required | High rate than secured loans |
| Instant approval decision | Approval may depend on credit score. |
| Fast funds within 24 to 48 hours | Lower credit limit for bad credit applicants |
| Fixed monthly repayments | No approval without income stability. |
b) Secured home improvement loans
Borrow funds for renovation, but pledge an asset that is your home. The loans are used when you need to borrow a large amount.
| Pros | Cons |
|---|---|
| Lower rate of interest | Default causes losing your home |
| Higher borrowing limit | Longer application process |
| Longer repayment terms | Not ideal for urgent needs |
| Boosts property overall value | Late payment penalty apply |
Home equity loans
It is the option to encash your home equity, which is the value of your property. Over time, if your property value has increased, you can borrow that amount. It is also considered a second mortgage.
| Pros | Cons |
|---|---|
| A good option for big projects | Need sufficient equity to qualify |
| Fixed rates add certainty | Puts your property at risk |
Credit cards or Overdrafts
If your renovation requirement is small, using a credit card or overdraft facility is also an option. But repayment ability should be strong, as these are comparatively high-interest options. Some lenders offer a zero-interest period.
| Pros | Cons |
|---|---|
| Good for immediate expenses | Puts you in expensive debts |
| No delay in getting money | Very high rate after promo period |
Green or energy efficiency loans
These are loans for eco-friendly home upgrades and renovations. This includes installing solar panels, energy-efficient appliances, or insulation.
| Pros | Cons |
|---|---|
| Can qualify for government subsidy | Approved only for green upgrades |
| Lower rate of loans | May not qualify for government incentive |
How to choose the right loan?
You need to focus on the following points to choose the correct loan type for home renovation.
- Loan amount needed – Estimate your required amount and keep an extra 10%-15% of the budget.
- Loan term – Your tenure affects the cost of the loan. A shorter tenure means larger instalments and higher rates. At the same time, a longer tenure ensures smaller instalments and a lower interest rate.
- Loan term – Your tenure affects the cost of the loan. A shorter tenure means larger instalments and higher rates. At the same time, a longer tenure ensures smaller instalments and a lower interest rate.
- Your credit score – It may not be decisive in the current lending environment. But it still matters, especially when choosing a bank. For flexible borrowing, you can pick a private online lender.
- Fees and charges – Always make sure you choose hidden costs and charges. Early repayment penalties, processing fees, or late payment penalties.
- Loan repayment flexibility – Some lenders offer an early repayment facility without penalty, payment holidays, and a top-up option.
Steps to get a home improvement loan
If you want smooth approval on your home renovation loan, follow the suggestions below.
- Plan for renovation – You need to plan for renovation before applying for the loan. This mainly includes budgeting to decide the actual amount you need.
- Check credit report for errors – Check your report to ensure that there are no errors after a lender performs a hard credit check. That degrades your credit score, affecting approval chances.
- Compare lenders – You should never choose a loan offer without comparing lenders. It provides a clear idea of which lenders offer good deals, along with the interest rates and tenures.
- Get pre-qualified – Never apply to a lender right away. First, apply through a broker to many lenders through just one application. This prevents a hard search from appearing on your credit report. Also, determine the loan amount you can qualify for.
- Apply and provide documentation – Apply for the loan now and provide all required documents. Make sure all your details are accurate. Otherwise, loan rejection may happen.
- Receive funds and start renovation – Get money and use it wisely for renovation purposes. But don’t forget to repay on time with timely instalments.
What mistakes should you avoid?
Making the following mistakes can make your loan journey more difficult and affect your finances. There are plenty of options from home improvement finance to personal loans for bad credit, but some mistakes can affect your decision. Know about them and apply with caution.
- Ignoring total cost – While applying for the loan, calculate the total cost. Use a loan calculator for it.
- Over-borrowing funds – Never over-borrow funds, as repaying them will be a big fix otherwise.
- Delaying repayments – Delayed repayments can cause a drop in credit score. Also, you may fall into a debt trap.
- Skipping the fine print – Not reading loan terms and conditions can make you face unpredictable, hidden fees or penalty chaos.
- Not comparing deals – If you don’t compare varied deals offered by varied lenders, you will end up taking an expensive deal.
Conclusion
Home renovation demands hard work and financial sufficiency. Home improvement loans are the most suitable solution. The information above will help you borrow smart. Find your mental peace with affordable loans that support you as per your repayment ability. Choose a broker for rational suggestions on the best loan offers.
Ava is Editor-in-Chief at Givemyloan and is known for her deep and practical approach to modern personal finance. She has written several articles covering topics like personal loans, business loans, etc. Coming from an economics and finance background, she has worked behind the scenes to curate informative content to help borrowers identify the right loan option.
Ava’s role at Givemyloan lets her combine her interest in writing with her curiosity to explore the finance realm. She likes to be updated about what is happening in the lending industry. Most importantly, she tries to instil her knowledge in her writing in the best way possible.
She is passionate about helping borrowers look beyond the general features of a loan, i.e. about the fees and other intricate details. When she is not writing, she likes to read contemporary fiction. She is on a mission to help educate people looking for loans so that they take the right route.
