Can you get a home improvement loan with bad credit?

Yes. Whilst a bad credit history will mean fewer options, if you’re looking to make home improvements, you can look for specialist lenders for people in your situation.

7 min read
home improvement loan

What credit score is needed for a home improvement loan?

There’s no set credit score needed for a home improvement loan, but the higher it is, the more options you’ll have. Many lenders won’t accept people with poor credit histories due to the risk of that person not fulfilling their agreement. 

Despite this, some lenders specialise in offering home improvement loans to those with bad credit.

Which type of loan can I get for home improvements?

There are two types of loan you could use for home improvements, a secured loan (also called a homeowner loan) or a personal loan (also called an unsecured loan).

Secured loan

A secured loan is when the loan is tied to an asset you own, most commonly your home. You will need to have enough equity (the difference in the value of the house compared to the amount owed on the mortgage) to cover the amount you want to borrow. In the event of the account defaulting, the lender is legally allowed to enforce a sale of the asset to recoup the money they are owed.

This then shifts the risk from the lender to the borrower. There are benefits of a secured loan, for example, you can generally borrow larger sums over a longer period of time. You are also likely to find a more affordable rate of interest - even with bad credit.

Although certain lenders will secure loans against high-value assets such as cars or jewellery, most secured loans are only available to homeowners. So if you are looking to borrow money for items to add to a rented property you don't own (e.g. furniture or white goods) this will not be available to you.

Secured loans can be a cost-effective solution for people with bad credit. Your home will be at risk though if you cannot keep up your repayments, so you must ensure you can afford the terms for the full duration of the loan.

Personal loan

If you’re looking to make adjustments to your home that cost less than £15,000, you may be better placed to go for an unsecured loan. A personal loan isn’t secured to any assets. This makes it less risky for the person borrowing money, as no assets can be reclaimed in the event of a default.

But because there’s more risk to the lender, the interest rate charged is normally higher than on secured loans. If you have bad credit, this can increase further and some lenders will refuse your application. There are lenders that specialise in offering finance to people with poor credit histories, and we work with many of them. You can check your eligibility for the lenders we work with on our loans for bad credit.

How to apply for a home improvement loan with bad credit

  • Calculate how much you’d like to borrow and over how long. Also, work out what you can afford to pay each month - and make sure you can pay for the duration of the loan.
  • If you are looking for a secured loan, find out the estimated value of your property using an online tool (here is one from Zoopla). Then delete the amount outstanding on your mortgage from the figure. This will give you a rough idea of the equity you hold in the property, which will inform you of the amount you can borrow.
  • Research all the options available to you. Use soft search facilities and eligibility checkers beforehand so your credit score isn’t impacted. Price comparison websites are a good way of searching many lenders at once. You can check your eligibility and receive a quote for all our loans before making a full application.
  • Once you’ve found the best deal you are likely to be accepted for, follow the full application process through the lender’s website or app. If it’s an unsecured loan, you could be given a decision within a few minutes and, if successful, receive the money in your bank shortly after.
  • The process for secured loans will take longer. This is due to you having to provide extra paperwork surrounding your home and the property's valuation. Your lender will help you through this, and in most cases keep you informed at every stage

Are my home improvements essential?

No loan decision should ever be taken lightly. Before undertaking any home improvements, it’s a good idea to ask yourself the following questions:

  1. Are the improvements you are looking to make essential, or will they load you with debt unnecessarily?
  2. Will they add value to your property above the cost of doing them?

Unless the answer to at least one of these questions is yes, it may not be a good idea to take out a home improvement loan. Remember ‘essential’ applies to structural issues such as a leaky roof rather than cosmetic changes you could put off.

If you think the improvements will increase the value of your property, have you assessed this against the full cost of your borrowing? For example, if you're borrowing £15,000 to fund renovating, you must check that it will increase the home value by the full amount you have to pay back (including interest and charges - not just the £15,000).

Can I afford the loan?

Most importantly, figure out if you can truly afford to take out the loan and cover the repayments for the whole of the term.

The consequences for missing payments on an unsecured loan will prolong your negative credit history. It’s much worse if you take out a secured loan and fail to keep up with your payments, as you could lose the home you are trying to improve.

How else can I borrow?

Credit cards or overdraft

If you’re looking to make small adjustments to your home, you may be better placed using a credit card or an existing overdraft. If you have either one of these accounts already, it will save you applying for further credit, which will mean no impact on your credit score (as long as you maintain your repayments on time, every time).

Credit Union

A credit union is a collective where all members pool their savings together. You can then request a loan using these funds. As they are non-profit organisations this can mean you’ll secure a cheaper interest rate.

Credit unions are usually united by members with a shared connection, such as where they live or work. They offer both secured and unsecured loans, you can find your nearest credit union and see if you are eligible to join one here.

Peer-to-peer (P2P) lending

P2P lending works by borrowing money off an individual rather than an institution, with the deal set up by an intermediary platform. You’ll still take a credit check which will be logged on your credit report, and each lender has their own requirements. It’s good to find out how close you are to matching these before you apply, to decrease the chances of a failed application.

As these types of lenders don’t have the same costs as larger institutions, P2P loans can often be cheaper. As with every source of finance, the better deals are usually only reserved for those with a positive credit history. But there are plenty of P2P lenders for people with bad credit, so you could look into these.

Government support

If you are on benefits then a budgeting loan could be a solution. You’ll need to check your eligibility, but you could access up to £812. If you are on Universal Credit you may be eligible for an advance or hardship payment.

Are the home improvements linked to improving your accessibility? If you need to adapt your home because of disability then you could be eligible for financial support. If this applies to you, contact your local Home Improvement Agency. They will be able to assist you in finding a contractor and plan your finances, which may be more cost-effective than a standard loan.

Disclaimer: All information and links are correct at the time of publishing.