How to get a home improvement loan without equity

There are two types of home improvement loan: secured and unsecured. You need to be a homeowner and have equity in your property to be eligible for a secured loan. If you don’t any equity, you could consider getting an unsecured home improvement loan instead, as this doesn’t require any assets.

6 min read
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What is a home improvement loan? 

A home improvement loan is a form of borrowing that you can use to renovate your home. This may include anything from redecorating to an extension or loft conversion.

Secured home improvement loans typically range from around £10,000 to £100,000 and unsecured loans range from around £1,000 to £25,000 – depending on the lender. How much you can personally borrow depends on your individual circumstances - and on the lender’s criteria, which can vary from one company to the next.

Why take out a home improvement loan? 

You may wish to take out a home improvement loan because you want to make changes to your home but don’t have the cash to pay the costs upfront.

For example, if you need to add an extension because you’re looking to start a family but don’t have the bedroom space, a loan could be a way for you to access the money you need upfront and spread the repayments (including interest) over a fixed period.

Do you need equity for a home improvement loan? 

Equity simply refers to the difference between your property’s value and your outstanding mortgage. It’s essentially the portion of your home that you own outright. 

Whether you need equity for a home improvement loan depends on whether you’re applying for a secured or unsecured loan:

  • secured home improvement loan – requires you to have equity because you need to secure the loan against an asset, such as your home
  • unsecured home improvement loan – doesn’t require you to have equity because it isn’t secured against anything

You can normally borrow more with a secured loan because your home is used as collateral. This gives the lender a safety net. In the event you fall behind with your repayments, they could sell your property to get their money back (as a last resort).

With unsecured loans, the lender doesn’t have this added layer of protection, so that’s why unsecured loans are for lower amounts. Also, interest rates tend to be higher compared to secured loans to offset some of the risk to the lender.

Is it possible to get a home improvement loan with bad credit and no equity? 

Yes, it is possible to get a home improvement loan with bad credit and no equity, though your options may be limited. You won’t be eligible for a secured loan, but you could apply for an unsecured home improvement loan.

Whether your application gets accepted depends on the lender’s criteria and your individual financial circumstances, such as your credit score and payment history.

There isn’t a set credit score needed for a home improvement loan but having a high one greatly increases your chances of approval – and should give you access to better deals.

Some lenders specialise in providing loans for those with bad credit. But bear in mind that interest rates tend to be higher compared to mainstream loans. So, it may be worth improving your credit score before you look for a loan.

How do I know if I can get a home improvement loan? 

In order to find out if you can get a home improvement loan, you should first research the different types of loans available. This will help you to find out what you’re eligible for and what you can afford.

One way to do this is by looking at different deals online and comparing them using loan comparison platforms. Don’t forget to also check direct websites for lenders too. Plus, it may be worth speaking to a broker to explore your options (though a fee may apply for their advice).

You can also use a loan calculator to work out how much your monthly repayments will be to make sure it’s affordable.

Once you’ve conducted adequate research, use an eligibility checker to see whether you’re likely to get accepted for the home improvement loan before applying. This reduces the risk of being rejected and having to make multiple loan applications, which could damage your credit score.

What should I consider when taking out a home improvement loan? 

There are several things you’ll need to consider when taking out a home improvement loan, including:

  • whether you need the renovation immediately – if you can wait a while and save up some money, you may be able to finance it without needing to take out a loan
  • if the home improvements add value to the property
  • your credit score – if your credit history isn’t great, it might be worth working on it before you apply
  • the cost of borrowing – if you have bad credit and get accepted for a home improvement loan, you might be subjected to high interest rates
  • the consequences of falling behind with your repayments – if you’re suddenly unable to meet your repayment plan, you could incur late fines. Plus, missed payments will damage your credit score

How else can I finance a home renovation without equity? 

There are other options for financing a home renovation without equity, such as:

Savings 

If you have savings, consider putting these towards the home improvements you want to make. Even if your savings don’t cover the total cost of the renovations, at least you’ll only need to take out a smaller loan.

Personal loan 

A personal loan is unsecured and doesn’t require any collateral. Be aware that the interest rates may be higher and the loan term shorter than with a secured loan because personal loans are more of a risk to the lender (in terms of them getting their money back).

Credit card 

For small amounts of money of up to around £1,500, you could take out a credit card to finance your home renovation. If you already have a credit card this will save you from taking out more credit. However, some credit cards can come with a high interest rate or a limited 0% offer which runs out after a set amount of time, so take this into consideration when making your decision.

Credit union loan 

A credit union is an organisation that enables members to pool their savings and lend money to each other. Since they are non-profit, it’s likely you’ll secure a cheaper interest rate compared to a bank loan.

Just be aware that it can be hard to join a credit union because you need to have a shared connection (like your job or area, for example) to apply. You can search for credit unions near you to see if you’re eligible to join.

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