Home Improvement Loans
Home improvement loans can be used to pay for an extension, loft conversion, new kitchen, double glazing or just general house repairs and can increase the value of your home. Home improvement loans are usually unsecured loans.
The truth about home improvement loans typical APRs
High Street banks and loan comparison websites like to advertise Typical APRs to entice borrowers to complete their application form. These typical rates are offered to at least 66% of Accepted applications. However, when you consider that only around 1 in 4 applications are actually accepted, the vast majority of borrowers will be left frustrated and will have to start all over again with another lender.
How do home improvement loan lenders decide which applications they will accept?
Home improvement loans are usually not secured against property or any asset. It is therefore more difficult for a lender to get their money back if the borrower does not or cannot repay the loan.
Because of this increased 'risk' (compared to secured loans) unsecured lenders tend to have stricter underwriting rules. In particular, lenders will look at the potential borrower's credit history and how they have conducted their previous and current credit or loan accounts.
In summary the lender has to decide, based on their borrower's credit history, how likely are they to repay the home improvement loan. If the risk is too high, the borrower will be declined for the loan. If the risk is acceptable, then the lender will (subject to other minimum requirements) make a loan offer.
How is the rate you will be paying determined?
Assuming a loan offer is made, the Actual APR will normally depend on two things, the loan amount and that level of risk. Generally speaking, the higher the loan amount the lower the APR will be. In terms of the level of risk, the higher the risk the higher the APR lenders will charge - this is known in the loan industry as rate-for-risk.
By entering your details once, The Lending Wizard will give you your Actual APRs for all the loans you are eligible for. This way you will know your Actual APR, before you apply to your chosen lender.
Does it pay to shop around for the best home improvement loans?
Most lenders use this rate-for-risk assessment process to set their APRs. For this reason you will find that for most High Street banks, their typical APRs are very similar.
In effect this means that a low risk borrower is likely to eligible for all the low rate home improvement loans but equally, someone whose credit history is not so good may not be accepted for any of these loans.
To shop around you will have to complete an application form for every lender and furthermore, each lender will then conduct a credit search against your name. Applying to multiple lenders in this way, can be damaging to your credit history.
Unfortunately, whilst you might be able to get discount from a car dealer, the lenders have strict criteria so sadly, haggling won't get you a better deal!