Are home improvement loans hard to get?

There are two types of home improvement loan: secured and unsecured. While the difficulty with getting either type of loan depends on your personal circumstances and the lender’s criteria, you may find it easier to get a secured loan compared to a secured loan. This is because, with a secured loan, you use your home as collateral, which reduces the risk of the lender not getting their money back.

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How hard is it to get a home improvement loan?  

Making improvements to the home is something most of us find ourselves wanting to do at one point or another. Whether it’s a simple coat of paint or building a brand-new conservatory, the costs of making those improvements can add up. In order to cover those costs, you may consider a home improvement loan.

An important thing to know about home improvement loans is that there are two types:

While the function of both is the same (you borrow a sum of money with interest that you repay over a fixed period), there is one key difference. A secured loan must be tied to an asset that you own (usually your home), which is used as collateral. In the event you cannot repay the loan, the lender may sell it to claim back unpaid funds, as a last resort.

This security mitigates some risk for the lender. As a result, secured loans are available for much larger amounts than unsecured loans, which aren’t tied to any asset. Also, if you have a low income or poor credit history, you may find it easier to get a secured loan compared to an unsecured loan.

Be aware, how hard it is to get a home improvement loan depends on how well you fit the eligibility criteria. This can vary from one lender to the next.

Home improvement loan eligibility criteria 

Eligibility criteria for both secured and unsecured loans will vary from lender to lender. But there some common factors you can be sure lenders will look at, such as your: 

  • affordability for a loan (based on your income and outgoings)
  • credit score (which gives lenders an indication of how creditworthy you are)
  • credit history (including payment history and any negative markers)
  • debt-to-income ratio (your monthly debt repayments versus your monthly income)

Bear in mind these will be weighted differently depending on which lender you’re using as well as the type of loan. For example, your level of income may be considered more heavily for unsecured loans than secured loans where you have collateral as an additional safety net for the lender.

Read on for your 1-month eligibility improvement plan.

Affordability

Your affordability is essentially whether you can afford the loan. Lenders look at your income and outgoings (including any other repayments) and weigh up whether you have sufficient funds left over to afford the monthly repayments for the loan.

Credit history

Lenders will also look at your credit report to assess your credit history and find out your credit score. Your report includes any credit you currently have (and any you’ve taken out in the past six years), your payment history, accounts and any CCJs or other negative markers.

Debt-to-income ratio

Your debt-to-income compares your earnings with your debt. It’s shown as the percentage of your monthly earnings that goes towards debt repayments. Lenders use this to assess your ability to manage monthly repayments. The lower this is, the more likely you are to be approved for a loan, as you’ll be seen as lower risk.

Secured home improvement loan eligibility criteria

Secured home improvement loan lenders will look at all the above, but their importance will be weighted differently. This is because the loan is secured against an asset which reduces the lenders’ risk. However, they will also look at additional elements that unsecured loans do not. These will usually be concerning your house, as this is what the loan will be secured against.

Your equity

Your secured loan lender will need to confirm the amount of equity you have in your house. Equity is the difference between the value of your property and the amount you owe on the mortgage.

You need to have enough equity to cover the amount you want to borrow. This is because the lender must be confident they’d be able to claim back any outstanding funds with the sale of your property if it came down to it.

The value of your house

As part of the application process, the lender will consider the value of your house. Using this information, they’ll be able to confirm whether your house is worth enough for your equity to be sufficient.

How do I get a home improvement loan? 

To get a home improvement loan, you’ll have to apply, usually online (though it may also be possible over the phone or in-person). You’ll need to provide certain information about yourself and your finances. Before you apply though, there are some things you should do to check your eligibility to ensure you’re choosing the right loan for you.

1. Decide on the type of loan

The first thing to do is decide which type of loan you’re going to get: secured or unsecured. Unsecured loans (such as personal loans) can go up to a maximum of £25,000, depending on the lender.

So, if your project is going to cost more than that, a secured loan may be worth considering instead. Though there are other factors besides the amount you also need to think about, such as loan term and the total cost of borrowing (known as the Annual Percentage Rate or APR), for example.

2. Compare loans 

Once you’ve decided on the type of loan, you can start comparing loans to find the right one for you. Different lenders will offer different terms, interest rates and so on, so doing a thorough comparison will help you get the best deal for you.

You could go about this by using comparison websites, checking direct websites too, or asking for advice from an independent financial advisor.

3. Check your credit report 

Checking your credit report is an important step before you apply. This is because any inaccuracies can negatively impact your credit score, which can affect the deals you’re offered. Be sure to read over your credit report and fix any errors to make sure it’s accurate.

4. Check eligibility 

Once you’ve chosen a loan, be sure to check the eligibility criteria carefully. While you may think you fulfil the criteria, there may be something you don’t quite meet. Applying for credit and getting rejected can lower your credit score, impacting your ability to get credit in the future. So, using an eligibility checker first to find you’re likely to be approved is important.

5. Check affordability 

Making sure you can definitely afford to take out the loan is essential in all cases, but especially when getting a secured loan. Remember, that loan is secured against your house, and if you can’t repay it, you could risk losing your home - as well as causing damage to your credit history. So, make sure you can afford the monthly repayments (including the interest) before you apply.

6. Apply for a loan 

The final step is to make sure you have all the documents you need to hand, to prevent any delay with your application. You can then apply online (in most cases), by post, or sometimes in person.

How long does it take to get a home improvement loan? 

How long it takes to get a home improvement loan can vary widely depending on the type of loan you apply for (secured or unsecured) and the lender.

Unsecured loans can be approved as quickly as the same day and usually within a week. Secured loans, on the other hand, can take longer as they require further checks, such as those on the value of your home and your equity. Especially since larger sums of money are involved.

Should I take out a loan for home improvements? 

Taking out a loan for home improvements is a big commitment, so it’s important to consider if it’s the right thing to do. Ask yourself these four questions: 

  1. are the improvements essential?
  2. are the improvements affordable?
  3. will they add value to your home?
  4. do the benefits of taking out this loan outweigh the risks?

If you’re sure you want to borrow money to make home improvements, you could also consider alternative types of finance. Perhaps remortgaging is a more suitable option for you if you want to borrow against your house. Or a credit card may be enough to pay for the improvements if they’re smaller.

Whatever you choose, be sure that it’s the right option for you and that you can make your repayments on time now and in the future. 

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