Home improvement loans

Home improvement loans

Home improvements can be a great way to make a property a better place for you and your family to live, while increasing its value at the same time.

However, even though making improvements to your current house or flat often works out a lot cheaper than trading up to a larger home, many projects still require a significant financial outlay.

Whether you want a new kitchen, need to repair your roof or are planning an extension that will transform your home, you may therefore have to borrow money to fund the work. A low-rate personal loan can be one of the best ways to do this.

This guide to home improvement loans should help you to decide whether it is the right finance option for you.

Advantages of a home improvement loan

A personal loan offering the chance to borrow up to £15,000 over five years, for example, is a popular means of funding home improvements.

You can currently borrow between £7,500 and £15,000 at an interest rate of 5% or thereabouts. This makes a loan of this kind a very cheap way, in historical terms, to access the extra cash you need.

Advantages of choosing a personal loan also include that your payments are fixed – making it easier to budget – and that you can generally choose to repay the amount borrowed over between one and five (or at least three) years.

So while you will pay less interest overall if you can afford to repay the loan within a shorter timeframe, you also have the option of spreading the cost and reducing the size of the regular repayments if necessary.

Some loans also offer the flexibility of a payment holiday of say two or three months at the start of the agreement.

Disadvantages of a home improvement loan

The best loan rates are generally for borrowers looking to make repayments over three and five years, so you will often pay a higher interest rate to borrow over a shorter term.

The interest charges on larger or smaller amounts can prove a lot more expensive too, while your credit score has a significant impact both on the interest rate you will pay on a loan, and the amount you will be able to borrow.

As rejected credit applications have a detrimental effect on your score, it therefore makes sense to check your credit file first to see whether you are likely to be approved or not.

MoneySupermarket can help you to do this; all you have to do is sign up for a free trial of a credit file checking service. Either way, it is vital to ensure that you will be able to afford the repayments.

Otherwise, you risk being hit with punitive penalty charges, not to mention damaging your credit file and therefore your chances of being accepted for top deals in the future.

Alternatives to a home improvement loan

If you find that your credit score is preventing you being accepted for the best home improvement loans, one option is to consider a secured, or homeowner, loan that uses your home as security. But falling behind with the repayments on a loan of this kind will put the roof over your head at risk.

However, secured loans are a good choice for anyone planning a big project as they can be used to borrow up to £100,000 – depending on how much available equity you have in your home.

For smaller amounts, meanwhile, a 0% credit card is also an option – as long as you are disciplined enough to limit your spending and manage you repayment plan so that the balance is paid off by the time the interest-free period comes to an end.

Finding the right home improvement loan

Personal loans deals, just like those available on other financial products such as credit cards and bank accounts, vary widely. But securing the best terms and lowest interest rate possible can make a massive difference to the amount you repay.

So it makes sense to shop around. You can do this quickly and easily by using the MoneySupermarket loans channel to compare hundreds of different loans from a wide range of lenders.

The Help me find a loan tool can speed up the process of finding the best deals for your individual circumstances even more – all you have to do is enter a few details such as your name, your annual income and the amount you want to borrow.

Debt consolidation loans

Debt consolidation loans

Lots of us owe money on more than one credit card or have several different credit agreements or loans in place. It can be tricky keeping track of them all – and if you get your finances muddled up and miss payments, you can soon get into big trouble.

This is when a debt consolidation loan can come in handy. As the name suggests, you consolidate all your debts into the one loan, so you only have one payment to make each month. Streamlining your debt obligations in this way can take a lot of the hassle out of managing your money.

Here, we explain exactly how this type of loan works, and why having one could help you get your finances back on track…

How do debt consolidation loans work?

With a debt consolidation loan, you simply move all your borrowing, or a significant chunk of it, onto the one loan.

You can then close down the various credit card and loan arrangements you’ve had previously, using your consolidation loan to clear the debts. Rather than making lots of separate payments to different lenders every month, you’ll only have to make one to your loan provider.

With each separate existing loan you look to pay off, check whether there are any early repayment charges – and, if so, factor them into your calculations.

Most debt consolidation loans are unsecured, which means the lender can’t lay claim to your home if you are unable to keep up with repayments. That doesn’t mean you can be casual about paying what you owe, however – the lender could still pursue you through the courts for its money.

Be wary of loans which are secured, as this means that the debt is held against your property (or another asset), so if you’re struggling with payments, your home could be at risk.

Pros and cons of debt consolidation loans

The biggest advantage of a consolidation loan is that all your debts are in one place, so you only have one interest rate to keep track of, and one payment to make every month.

This can make managing your debts much more straightforward than having to think about making several payments every month.

It will also mean you can close down other credit card and loan accounts, which should improve your credit rating as it will show lenders that you are managing your finances responsibly.

However, one disadvantage of consolidations loans is that you might end up paying more interest than you need to on some of your borrowing.

For example, if you are transferring credit card debts across to a consolidation loan, you will end up paying more interest than if you moved these balances to a balance transfer credit card offering a 0% introductory period on balance periods for several months.

Things to note when taking out a debt consolidation loan

When consolidating debts, work out how big a loan you will need and check the interest rate, as rates are usually tiered depending on how much you borrow. As a general rule, rates are lower the more you borrow, so if you are only just in a lower tier, it might make sense to borrow a bit more if that means you will pay a lower rate of interest.

If you think you might be able to pay off your debt consolidation loan early, check to see if there are any penalties for doing this. Remember that the longer you take to pay it off, the more interest you will pay overall.

Finding the right debt consolidation loan for you

There are lots of different loans to choose from if you are looking to consolidate debts, so always to plenty of research before applying for one to make sure you secure the best possible deal.

Secured loans

Secured loans guide

Secured loans, also known as homeowner loans, offer a way to borrow larger amounts for less by using your home as equity. So if you are looking to borrow say £25,000, secured loans are definitely worth a look – especially as most of the top personal loan deals are only available on up to £15,000.

Loans of this kind are also a good option for anyone whose low credit score makes it hard for them to get a low-rate personal loan. There are risks involved in borrowing via secured loans, though. You could, for example, lose your home if you fall behind with the repayments, so it is vital to ensure that you do not overstretch yourself

This quick guide looks at the pros and cons of borrowing money via a secured loan so that you can make the right decision.

Advantages of a secured loan

Homeowner, or secured, loans are available for amounts of between about £5,000 and £125,000. This makes them a good choice for anyone keen to borrow a larger amount.

The headline interest rates on the top secured loans also start at between 5% and 6%, although the total borrowing cost will often work out higher.

Another advantage is that the fixed monthly payments should make your repayment plan easier to manage.

Disadvantages of a secured loan

The amount you personally can borrow via a homeowner loan will depend on your income, your credit score and your existing credit commitments, as well as the amount of equity available in your property.

Even though a lender offers loans of up to £100,000, you may only be able to borrow a fraction of that amount as a result.

As with personal loans, the interest rate you are offered will also vary depending on the state of your credit file.

Other disadvantages include that your property could be repossessed if you default on the repayments. That’s a hefty incentive to stay on track with your repayments.

Alternatives to a secured loan

An unsecured personal loan offering the chance to borrow up to £15,000 over five years, for example, is a popular alternative to a homeowner loan. Not only does this option avoid putting your home at risk, it may also come with even lower interest rates – if you can limit your borrowing to £15,000 and qualify for the market-leading deals.

However, borrowing more than £15,000 is more difficult – and often more expensive – via an unsecured personal loan.

The only real alternative for larger borrowers is therefore to look into remortgaging to free up some cash. Mortgage rates for those with a large deposit – or in other words a lot of equity – currently start at less than 2%.

But the downsides include potentially high upfront fees and the fact that remortgaging means paying interest for longer on the whole amount owed.

Finding the right secured loan

Secured loans deals, just like those available on other financial products such as credit cards and bank accounts, vary widely. When choosing a homeowner loan, shopping around for the cheapest deal is therefore the best way to ensure that you pay as little interest as possible.

You can do this quickly and easily by using the MoneySupermarket secured loans channel to compare hundreds of different loans from a wide range of lenders.

The Compare secured loans tool can speed up the process of finding the best deals for your circumstances even more.

Car finance deals

Car finance deals

Buying a new car – whether it is a brand new model or a secondhand vehicle – is exciting. Arranging the finance deal you need to cover the cost, however, is not.

While many people spend hours comparing and contrasting different makes and models and then haggle hard to get the price down, the number of people who take the time to scour the market for the best car finance deal is much smaller as a result.

However, paying over the odds to borrow the money to pay for a car can easily wipe out any reduction you manage to get on the price paid and make the vehicle cost a lot more overall.

In fact, you could end up paying thousands of pounds over the odds, which is why it’s worth understanding the various options and checking the interest rates and charges available.

The different types of car finance

Hire Purchase plans

Hire purchase (HP) plans typically require you to put down an upfront deposit (though in some cases this can be your existing car) and commit to a set number of monthly instalments.

Once all the instalments have been paid, the car – which you can drive from the start of the agreement – is yours.

In the meantime, however, the HP provider has the right to repossess your vehicle at any point if you fall behind on your payments. But repossession is a detailed process not to mention one of last resort. For example, you will first be sent written notice to give you the chance to pay your arrears. And if you can’t, a specific court order is required before your car can be taken back.

It is also worth noting that you will not be able to privately sell the car until you have paid the final instalment (which may be larger than the others) and, while it's worth looking at Voluntary Termination rights, ending the agreement early is likely to result in a penalty. You may be able to part-exchange your vehicle and refinance the existing loan, though this could incur higher interest rates and longer tie-ins.

Personal loans

A low-rate loan is almost always a much better way of paying for a car than a hire purchase agreement. What’s more, you can sell a car to pay off a personal loan should you become unable to keep up with the repayments.

However, the lowest personal loan rates are often limited to loans of between £7,500 and £15,000. So if you were thinking about borrowing £6,000, it may be worth increasing the amount to £7,500 to take advantage of the cheapest interest rates.

If you need to borrow as larger amount, on the other hand, you may find that you can get a lower rate by using your home as security. Just remember that your property will be at risk if you default on the repayments.

Either way, the MoneySupermarket loans channel is a great place to compare hundreds of deals from a wide range of lenders.

0% credit cards

For cheaper second-hand car purchases, a credit card offering 0% for an introductory period could prove the smartest choice.

However, you will need to be disciplined enough to avoid incurring high interest rates at the end of the 0% period.

It is also worth noting that these deals – like the cheapest personal loans – are limited to people with good credit scores.

Leasing agreements

Leasing agreements are basically long-term rental contracts with which you pay a monthly fee to use a car for an agreed period and number of miles.

They are popular with those keen to drive a brand new car without paying for it upfront, and come in two main forms: Personal Contract Hire (PCH) and Personal Contract Purchase (PCP).

With PCH, you can have a new car every few years without having to buy it at the end of the arrangement, while with PCP you buy the car at the end of the leasing agreement. Either way, remember to check the terms and conditions carefully for penalties and extra charges.

Bad credit loans

Bad credit loans

A bad credit loan, as its name suggests, is a loan specifically designed for people with a poor credit history.

There are plenty of reasons why you might have a bad credit rating, from having failed to keep up with payments on a previous credit agreement, to having a County Court Judgement (CCJ) against you. Even if you’ve never had a loan or credit card before you could end up with a poor credit rating because lenders can’t access any evidence to show that you could manage your borrowing successfully.

Normally it is virtually impossible to borrow from a mainstream lender if you have bad credit history, which is why there are specialist loans and credit cards available for people with poor credit records.

Advantages and disadvantages of bad credit loans

The biggest advantage of a bad credit loan is that you are actually able to borrow money, which you otherwise wouldn’t be able to do because of your poor credit history.

This can provide a real financial lifeline to people who need a loan either to cover a major purchase, or perhaps to consolidate other debts.

Another advantage is that having a loan can actually help people with a bad credit rating to repair their credit status. This is because, provided you always make payments on time, you demonstrate that you can manage your money responsibly.

The biggest drawback with this kind of loan is that interest rates are normally very high relative to standard loans. As applicants for bad credit loans have usually had problems managing their finances previously, they therefore represent a much higher risk to lenders, and therefore the rates they are offered are much higher than they would be for someone with a good credit score.

Things to note when trying to get a loan with bad credit

Loans can either be unsecured, which means the lender has no claim to your property if you are unable to keep up with your repayments, or secured, which means the loan is secured against your home or another asset. 

If you choose a loan which is secured, then although you might pay a lower rate of interest, your home could be at risk if you can’t keep up with the repayments.

When considering how long you want to repay your loan, remember that if you opt for a longer repayment term, you will end up paying much more interest than if you try and pay off what you owe quickly.

It’s also worth bearing in mind that interest rates on bad credit loans tend to be tiered depending on how much you borrow. Rates usually get lower the more you borrow, so if you are only just in a lower tier, it might sometimes be worth borrowing a little bit more to benefit from a lower rate. But don’t borrow more than you can afford to repay!

Find the right loans for you

There are many different loans for people with bad credit, so always do plenty of research before applying to make sure you have found the best loan to suit your needs. You can also compare debt consolidation loans if this is suitable for you.

Personal loans

Personal loans

Are you thinking of buying a car? Maybe you need a new washing machine or sofa. Or perhaps you want to jet off to sunnier climes for a well-earned break.

Most of us can’t afford to pay for such big-ticket items out of our regular income. Instead we need to borrow the money – and a personal loan might be the answer. 

Fixed monthly payments

A personal loan, sometimes called an unsecured loan, is different from an overdraft or credit card because it allows you to borrow a fixed amount over a fixed term, usually at a fixed rate of interest. 

For example, you might borrow £5,000 over three years at 9%. You therefore know at the outset how much you have to pay back each month, as well as the total cost of the loan, making it easier to budget.

Most banks and building societies offer personal loans. They are also available through the growing number of peer2peer lenders, though these are as yet unregulated.  

How much can you borrow?

You can usually borrow up to £25,000 with a personal loan – any more and the lender will want you to put up an asset (such as property) as security. Interest rates vary, but generally speaking, the bigger the loan amount, the lower the rate of interest. You might, for instance, pay 12% on a £1,000 loan but only 7% on a loan of £7,000. 

It can therefore be more cost-effective to borrow a larger amount, perhaps £7,000 instead of £6,500. But avoid taking out a loan you cannot afford to service or repay. Personal loans might be unsecured, but you still have to pay the money back.

Term of the loan

Lenders typically offer terms of one, three and five years – and it can be tempting to opt for a longer term in order to reduce the monthly payments. For example, if you were to borrow £5,000 over three years at 9%, your monthly payments would be about £160, so you would pay total interest of approximately £700. 

Extend the term to five years and your monthly payments drop to £104. However, you would pay about £1,240 in total interest, so the loan is ultimately more expensive. 

Credit history

The rate you pay will largely depend on your credit score. Most lenders carry out a credit check when you apply for a personal loan and if you have struggled with debts in the past and have a poor credit history, you could be turned down flat or charged a higher rate of interest.      

Low advertised rates

Watch out for low advertised rates as they are not guaranteed. By law, the rate on an advert must be given to 51% of successful applicants. In other words, almost half will pay a different – probably higher – rate. The figures also do not include the people who are refused credit. 

Multiple applications

If your application is rejected, it’s a good idea to check that your credit record is accurate, or try to improve your score before you contact another lender. You leave a footprint every time you apply for credit and lenders are wary of people who make multiple applications.  

Loan fees

Some lenders charge arrangement fees, which can bump up the cost of credit. You should also beware of any early redemption fees should you choose to clear the debt before the end of the loan term. 

Debt consolidation

Some borrowers take out a personal loan in order to consolidate other debts. Let’s say you have accumulated debts on credit and store cards at high rates of interest. If you take out a low-rate loan to clear the card debts, you could save money. And if you then cut up the cards you can keep your borrowings under control. Check with your potential lender first, though, as some do not allow consolidation.

Alternatives to personal loans

A personal loan can be a sensible option for many borrowers, but it’s worth considering the alternatives. For example, if you need a bit of extra cash to tide you over for a few days, you might be better off with an overdraft. You can also use 0% credit cards to your advantage, either to purchase a one-off expensive item, or to consolidate debts.

Compare loan rates

If you are searching for a personal loan, Moneysupermarket can help. Our comparison service carries the details of hundreds of different loans, big and small, short term and long term, so you can be sure to find the best deal