Personal Loan - Worth Applying for Home Improvements? High rate offered

WineDarkSea

We've only taken smaller loans for cars in the past but we are considering borrowing £20-25k over about five years for home improvements. We probably have enough cash in savings but want to keep about £20k "just in case". We have a decent household income (40% tax) and low mortgage so we have been able to save quite a lot already. We have various bank accounts to store this cash so I got a quote from one and was offered a 19.9% APR which was a surprise. Is this typical and how can we improve our chances of getting a decent rate, or should we just remortgage - our mortgage is about 25% of the property value - a five year £25k mortgage fixed for five years with no fee is comparable to the lowest loan rates advertised. (Or we could carry on saving as we should have enough for the whole renovation/extension plus £20k in a year or two). Are we expecting too much to borrow 20k over five years at a lower rate?

Arleen

Just keep on saving and do it for cash. As you are not far away from that, why would you want to pay any interest which will only increase the cost of renovation? Even at 5% APR over 5 years you are looking at ~3k interest.

And as you are not very credit active, this means you also have not much history of handling credit. And having good income doesn't mean you can handle credit well, at least that is what data around credit accounts shows. So that is why the high rates.

WineDarkSea

We'd like to do it a bit sooner ish as we are a family of four in a two bed with no plans to move due to schools and jobs and london house prices. We'd probably pay it off quicker than five years but want the breathing space, loans seem more flexible than mortgages for early repayment. Career wise I have time now which I may not have in a year or two. Although we'll probably save a few more £k before we start the work, we're just at the planning to plan stage. And it would be good to know if we can stretch the budget if needs be before engaging any professionals.

We have some credit history with the car loan, mobile bills etc and we use cash back credit cards which we pay every month. Our credit files are good as far as I can see, my credit card limit has been increased recently by the company. My husband's eligibility is 80% for the loan offered at 19.9%. The car loan we had with Santander was a low rate and with a mortgage, fee free, at 2.5% the cost would be around £1,500 over the five years, £300 per year seems reasonable and is offset by the interest earned on the savings.

I just don't know if we are being unreasonable to expect a £20k loan over five years to be at the advertised rates of around 3%.

DCFC79

Are you both financially linked ?

If you aren't do a soft search with a lender who offers them and see what rate you get ?

Maybe think about you both apply for a loan each, at a guess it would only work if you werent financially linked.

Arleen

Well, no one besides lenders doesn't know their criteria, so it's anyone guesses whether you will be given a loan, and at what rate. If you've decided that this is the way to go, pick couple lenders, apply with them and then follow with the best rate that comes back (if it's good enough). The eligibility calculator is really a very simplified guideline, so you may be positively surprised.

WineDarkSea

We must be linked as we have joint accounts and a mortgage.

The 19.9% was a bank offer rather than eligibility. We have a mortgage reserve account we could use, I'm just not sure how it works. We have so little borrowed on the property so it makes sense to use that equity and borrow to invest - we will increase the value by more than the spend as well as improving our family life in the home - extra bedroom and better laid out living space, including adaptations for my mobility problems. I guess it's better to approach our existing mortgage lender or main bank account.

System

WineDarkSea wrote: »

We have so little borrowed on the property so it makes sense to use that equity and borrow to invest

Not if you've 20 years mortgage left meaning you're paying 20 years of interest on what you borrow.

WineDarkSea

Our mortgage interest is very low and we've been earning more interest on our savings than paying our in interest for the same amount- currently we have 50% of the mortgage amount saved and could pay it off in about four years if we didn't extend etc. It will be six or seven years if we do extend. Not borrowing more when we bought initially has been a big mistake as we now can't afford a three bed house due to house prices rises, but we could've easily afforded the larger mortgage. Debt in a appreciating asset is not a bad thing if affordable.

WineDarkSea

And a £50k spend is likely to increase the value by £100k. We can achieve that spend with a £20k loan, well worth the £1,500 cost.

DebtFreeDebbie

I feel your pain there! I was surprised at just how high the rate was when I applied for a loan earlier in the year. For more frivolous reasons, I'll admit, but still surprising! Cue a week of Google searching, researching, and 'bugging friends and family' incessantly and I managed to dig up a few ideas to help bring the rate down.

The first was kinda obvious - negotiate as low as you can go. Second was checking my credit score / history (I used this post, though it'll depend on your country), but it looks like you're on top of that one already. Other than that, I'd suggest feeling out other providers and seeing what their rates are like - even if they're similar, this may give you some wiggle room in the negotiations. 'They're offering the same...why should we pick you?'.

Anyways, best of luck with the application! Keep us updated :-)