All homes need attention from time to time, but completing repairs and upgrades isn’t cheap. With this in mind, most homeowners will find that they require a loan. Before making an application, though, it’s crucial that you secure the best deal.
The truth is that the contrasts in interest payments between one loan and the next can be huge. The wrong choice could see you pay thousands extra over the duration of the term agreement. So, understanding the contributing factors and how to stop yourself from falling into the trap of excessively high interest is key. Here’s all you need to know.
1- Credit scores
When planning to make home improvements, you’ll probably start researching projects months before starting the work. You should use this time wisely by improving your credit score. After all, credit histories have a huge impact on personal loan agreements. From opening the door to more lenders to securing better rates, a higher score will serve you well. Crucially, it significantly reduces the threat of rejected applications.
Applications result in hard credit scores, so you’ll want to build your score now to ensure acceptance at the first attempt.
2- Choice of lender
A strong credit score gives you the best chance of securing the best rates. However, it must also be noted that interest rates vary greatly between different lenders. A secured home improvement loan from Squared Money may be a wise choice. For starters, the loan is geared towards the intended purpose. This in itself can unlock more agreeable terms than generic personal loans that lack focus.
Moreover, some lenders are kinder to their customers than others. Always be sure to check out hidden fees like annual charges too.
3- Borrowing amount
Regardless of the exact interest rate, borrowing more money will result in higher total interest costs. With this in mind, you should not borrow £25,000 for a project if you only need £20,000. Therefore, you must always research your intended projects and speak to contractors on Checkatrade before taking out your loan. Aside from preventing unnecessary added interest costs, it will stop you from underborrowing and not having enough capital.
Nevertheless, you will want to leave yourself a 10% buffer on your budget for unexpected costs. If possible, use personal savings for this.
4- Loan duration
As with any loan, the total payments on a home improvement loan will be reduced if you pay it back quickly. Shortening the term agreement does increase monthly payments, but only by a relatively small amount. Conversely, longer agreements have slightly lower monthly payments but cost you more in the long run. The difference between a three-year and six-year loan, for example, could equate to thousands.
Of course, the loan repayments need to align with your cash flow management. Still, keeping it as short as possible without overstretching your finances is advised.
5- Payment promptness
Finally, the overall cost of the home improvement loan will jump dramatically if you fall into the trap of missed payments. You’ll get charged a late fee while interest becomes higher as the principal balance is still higher. So, you must always make the payments on time as it can be difficult to get things back on track once you fall off track. So, arranging for payments to be made on a suitable date each month is king.
Do all of these things and you should find that the home improvement loan is more manageable. In turn, you will be free to enjoy the rewards of your improved home setting.
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