Should You Take Out a Loan for Home Improvement Projects?
Recent research by online price comparison site Moneysupermarket.com, showed that one in five homeowners was considering taking out a loan to finance DIY and home improvements.
This raises an interesting question about the value of home improvements versus the cost of financing these projects and whether the ultimate return is worth the investment.
Certainly most homeowners will have a variety of reasons for deciding to indulge in some holiday DIY projects. Many people enjoy it for the fun and satisfaction of being ‘hands-on’, others find it to be a more cost-effective way to improve their home than getting in tradespeople to do the job.
Some like to make small seasonal changes to their homes to keep up with trends and fashions – for example those who regularly re-decorate, put up fresh paint and wallpaper, change colour schemes and window dressings and refresh furniture and accessories on a regular basis.
Others are looking forward to the longer term implications of improving their home. For example, by installing underfloor heating, building an extension or updating a bathroom. These projects can add to the value of a home.
For small projects, financing should ideally be done via savings and careful budgeting. Borrowing money to finance trends is like clothes or hobby shopping on a credit card – not the best way of managing your personal finances
If however, your aim is to add value to your home through carefully chosen, high value projects, then research. There are resources in print and online to advise on the average cost of a large home job and the amount it may add to your home.
Get the opinion of a realtor or building expert. It may be that the outlay and time involved doesn’t actually justify the end sales price. On the other hand, your research may reveal that there’s value in carrying out the project.
If so, take out loans with care. Avoid spending on expensive credit cards and bypass your bank as the first port of call. The cheapest loans will often be found by passing high street banks and brokers and heading directly online.
Use a price comparison site to find the best deals for you. Aim to repay back the loan as quickly as possible when inputting in your criteria, as this will lower the cost of finance overall and avoid the debt becoming a burden.
Ideally save a chunk of money to put towards your project in advance. A careful budget will usually reveal where cuts can be made. Factor in takeouts, ‘mystery’ direct debits, cups of coffee and other treats and you could be surprised at what’s left!
Find a reputable lender, look for an account with the best interest rate and the fewest charges. Do your sums and don’t be swayed by advertising or promotional ‘incentives’.
Be sure that you can repay your loan and consider whether you need repayment insurance if you’re put out of work in the meantime or lose your income.
Be warned that loan protection insurance can be high if offered through the loan provider. It may be worth seeking unemployment and accident/sickness insurance to protect your income and repayments to another provider, to guard against the worst happening.
Essentially, think carefully and fully when considering taking out a loan to finance home improvements. Do the maths, do your research and aim to repay back any borrowing as quickly as you can, or the debt may last longer than your new bathroom.
