What are the eligibility criteria for home improvement loans?

A home improvement loan is a facility one takes out to pay for property renovations. It helps them improve property value and make it more comfortable. Depending on your affordability and requirements, it could be an unsecured or secured loan. You may get the loan against an asset secured as collateral in secured loans. Alternatively, individuals with stellar credit history and stable finances may seek unsecured loans. In each pattern, you pay the loan costs in fixed monthly instalments.

How does a home improvement loan work?

Individuals seeking home improvements like loft conversions, extensions, kitchen renovations, and bathroom refinishing can apply for home improvement loans. These loans can finance a part or complete renovation according to your finances. It just works like any other loan. However, the eligibility criteria for home improvement loans may differ according to the lender. Sometimes, you can check eligibility without impacting your credit score.

After the application, the lender may ask you about personal and financial details. It also includes the purpose you plan to use. Thus, you must provide specific details like- that you plan to use it for kitchen renovation.

After minimal credit checks, the lender may proceed with a detailed credit assessment that may impact the credit score. However, it has a short-term impact on the credit score.

If eligible, the lender may proceed with further document requirements like- payment slips/ self-assessment/ pension/ part-time, asset (collateral) slips, bank statements, and personal ID. After that, he provides you with an agreement listing the terms. Analyse these terms carefully to avoid any surprises later. Later, make payments according to your repayment structure.

How much money can you borrow on loans for home improvement?

Typically, you can borrow up to £500,000 on home improvement loans. However, if you need an unsecured home improvement loan, you may get up to £25000. Individuals require good credit scores and regular income to qualify for unsecured loans.

Alternatively, if you need over £25000 for your home renovation requirements, secured loans help. They allow you to grab a higher amount by pledging collateral.

You can provide your property, jewellery, car, and other precious assets as collateral. 

The collateral should meet the exact value you need as a loan. For example, if you need £80000 for home improvement, the asset must cost at least £84000 to qualify. However, you must have a good credit score to get a secured loan. Otherwise, you may seek unsecured loans.

Eligibility criteria for home improvement loans

The eligibility criteria for secured and unsecured home improvement loans may differ. Here is the brief of general eligibility requirements:

Eligibility requirement for secured home improvement loansEligibility requirement for unsecured home improvement loans
Should be 18+ permanent UK citizenShould be 18+ permanent UK citizen
You should have a good credit score with stable financesYou should have a good credit score with stable finances
Should have an account with a direct debit facilityShould have an account with a direct debit facility
Should have a regular incomeShould have a regular income. Individuals with high income qualify for better rates
Should provide an asset as collateral. The lender conducts the valuation of the asset and provides the actual value the asset should be ofA guarantor is a must if applying with bad credit or inconsistent finances. It will help you qualify quickly at better rates.

You may get better interest on secured loans only if you have high equity in the collateral pledged. Equity also decides the amount you may get on the loan. This is why lenders prefer homeowners for secured loans.

How do you get a home improvement loan with a poor credit history?

Yes, you may get a loan for a home update with a credit score, but you have limited options. You may struggle to get affordable interest rates and terms. It is because the lender redeems you as a risky borrower.

Re-analyse your finances and debts. Pay some high-interest debts, remove connections with a bad credit joint account and check credit reports for delinquency. Additionally, updating your personal information on the electoral roll may improve your chances of getting a loan.

You must use an eligibility checker before applying. It would help you understand the products for which you may qualify. It will help you understand the interest rates and repayment structure for the amount you are eligible for. It asks for personal details, dependents, monthly expenditure on household expenses, income, and employment type. 

It will help you know the exact amount you may get given the income and other aspects. It does not hinder your budget and credit score. Checking the affordability will help you borrow only the amount you genuinely qualify for.

Apart from these tips, the following tips may help you get a loan for bad credit for home improvement needs:

  • Improve your income aspects- check additional ways to earn
  • Identify the guarantor possibility
  • Borrow a lower amount than what you need
  • Wait until your credit score improves
  • Co-sign a loan with your spouse or partner

Is it necessary to include a guarantor for a loan for home improvement?

No, if you can prove your potential to afford the monthly payments.  Individuals without pending bills, timely debt payments and no new debts may get no guarantor loans from direct lenders quickly. Lenders only need one if the borrower shares inconsistent income with pending debts.

Before applying for a loan without a guarantor check:

  • Can you afford the payments plus interest costs comfortably?
  • Are there any prepayment penalties?
  • Can you have multiple income sources?
  • Would you be able to pay the dues within the chosen repayment term?
  • How non-repayments and defaults may impact your finances?

Analysing these questions may help you decide right for your financial needs.  

Individuals with good credit histories, incomes, and comfortable savings find it easier to qualify than those without.

Bottom line

Thus, a home improvement loan may help you instantly update your lifestyle and property value. It is the best way to fund the critical home update without accumulating savings. Depending on your needs and affordability, you can check secured and unsecured home improvement loans. If you apply with a bad credit score, check your affordability using an eligibility checker. It prevents you from hurting your credit further.

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