Find and compare home improvement loans

From large-scale makeovers to smaller DIY projects, home renovations may help increase the overall value of the home by making it more modern or functional. And best of all, you (or your tenants) can also enjoy a newly refurbished home.

Not every homeowner wants to fund their renovation project through dipping into their home equity or burning through their savings or credit card limits. For many Australians, a personal loan can be a competitive option to finance a home renovation.

Also known as home improvement loans or renovation loans, a personal loan lender will provide you with a lump sum that is used for the purpose of funding home improvement projects (assuming you meet all eligibility criteria).

There are a range of benefits to using a home improvement personal loan to fund your renovation dream, as well as some potential drawbacks that are worth weighing up before you apply:

Benefits of a home improvement personal loan

• You won’t need to refinance to access equity in your home or burn through your savings. It may put you in a more comfortable financial position to repay a loan.
• Personal loans typically have lower interest rates than credit cards. If you were tossing up between funding your project with plastic or with a loan, the interest charged through the latter may be lower.
• Borrowers must pay back the loan over a fixed term, typically 1 to 7 years. A personal loan may offer you more assurance you can pay off the debt in a short period.
• Personal loans may offer features that make the loan more flexible, such as the ability to make extra repayments or a redraw facility.

Other factors to consider

• You may have to pay upfront fees, such as establishment fees, as well as ongoing fees, such as annual fees, with a personal loan.
• The housing market fluctuates and there is no guarantee that home improvement as funded by a personal loan will increase your property’s value.
• Not all lenders will offer you flexibility through features, so be sure to compare your options thoroughly if this is important to your loan search.

Making improvements and modernising the design and feel of a property is one way that you may be able to increase its value. While nothing is ever guaranteed, improvements like updating a kitchen or adding a granny flat may have a positive impact on the value of the property.

If increasing the value of your property is your primary goal, then you should look into what type of renovation could make your home more attractive to buyers. According to Domain research, the most lucrative projects to add value to your home and potentially offer the highest returns include:

1. Kitchen upgrades
2. Bathroom upgrades
3. Repainting the interior and/or exterior
4. Boosting the street appeal of the home
5. Outdoor entertaining improvements

Minor home improvements could also bring up the value of your home without being too expensive or disrupting living arrangements of residents, like installing more storage or adding solar panels to the roof. Be sure to research which options may best suit not only your renovation goals but also your budget.

A personal loan may allow you to borrow funds to pay for these projects without having to dip into your property’s accessible equity to pay for them. And if your improvements boost your property’s value, so too may you boost the equity in the property.

This is one of the key advantages of choosing a personal loan over using your home’s equity to pay for the renovations. And if you were considering refinancing your existing home loan, boosting your equity may help put you in a competitive position to nab a lower interest rate.

There are several features that make up a personal loan and it’s important that you take time to choose which options may best suit your home improvement needs and fit into your budget.

• Fixed or variable

Personal loan rates come in both fixed and variable forms. Fixed rate personal loans will have one interest rate that keeps your monthly repayment amount steady over the loan term. This can be useful when it comes to budgeting for repayments throughout a renovation project.

However, loan features like making extra repayments are more commonly found with variable rate personal loans. Variable rate loans are subject to market fluctuation, so if rates rise, your personal loan rate may rise too, but if rates fall, your interest rate and loan repayments will decrease.

• Secured or unsecured

Choosing between a secured or unsecured personal loan can have a considerable impact on the total cost of the loan. A secured personal loan involves you offering up an asset as security that the lender will sell if you fail to make the payments on your loan. As there is an added layer of security for the bank, these loans may offer lower interest rates than unsecured personal loans.

An unsecured personal loan does not require you to offer up an asset as security, so there is no risk of losing said asset. However, this option may come with higher interest rates or fees due to the increased risk placed on the lender. If a low rate is important to you, then it may be worth considering a secured personal loan.

• Loan term

The actual length of the personal loan term you choose will also impact the overall cost of the loan. A short-term personal loan (1-3 years) will generally mean you’re paying a higher ongoing repayment (weekly, fortnightly, or monthly) but will be charged less interest over the life of the loan.

A longer-term personal loan (4-7 years) may offer lower ongoing repayments, but you could pay more interest as it is spread out over a greater period. The better option will depend on your budget and financial situation.

• Redraw facility & extra repayments

Some personal loan lenders offer helpful features that may help reduce costs and create more flexibility. Finding a loan that allows you to make extra repayments may give you more control and potentially reduce the interest you pay over the life of the loan. You will find that the faster you can pay down the loan, the more you will save over time.

And if you want to access these extra repayments for any reason, a redraw facility may let you do just that. Personal loan with redraw facilities allow borrowers to draw down additional repayments paid into a loan. Keep in mind that for both features, additional fees and interest may be charged.

You’ve done your research and know a home renovation personal loan is the right choice for your financial situation.

Applying for a home renovation personal loan may be a simpler process than you think. Simply follow these steps:

1. Determine your budget: Use the Borrowing Power Calculator to discover how much you may be able to afford to borrow with your personal loan. The amount you are approved to borrow for a personal loan will become your renovation budget.
2. Check your credit history: If you haven't checked your credit score recently, consider visiting RateCity's credit score hub to find out. This may help you avoid a personal loan application rejection. Once you know your credit score, you’ll have a better idea of which loan products and interest rates might be available to you through our Personal Loan Marketplace.
3. Compare loan options: RateCity makes it easy for you to compare a wide range of personal loan products from Australian lenders. Use comparison tools, such as tables and comparison rates, to narrow down your shortlist, and let our Real Time RatingsTM system help you identify which loans best suit your individual needs.
4. Ensure you're eligible: Now you know which loan you want, it's time to check whether you meet all the eligibility criteria. Remember, these can differ from one loan to the next. Consider reaching out to the lender if you have any questions and read the product disclosure statement provided.
5. Begin the application process: When comparing personal loans at RateCity, you can click directly through to the lender's website to apply online for your preferred personal loan. Consider having all the required documentation handy before you get started on your loan application. Keep in mind that applying for more than one personal loan (or any financial product) at any given time can hurt your credit score.
6. Submit your application: Once you submit the required documentation, simply await communication from the lender with an update on your application status. Personal loan approval times vary and may take a few hours or several business days.

There are other options homeowners may be considering as well to fund their home makeover if they cannot stump up the cash, including:

• Credit cards;
• Refinancing your home loan to access your home equity;
• A construction loan;
• Redrawing on your current mortgage, and;
• Using funds from your offset account.

The advantage of taking out a personal loan to complete your home renovation is that personal loans often charge lower interest rates than credit cards, especially if you take out a secured loan. This can help keep the long-term costs of borrowing money to a minimum

Using a personal loan can also minimise the time spent paying back the loan, which may mean less total interest paid on the loan. In contrast, accessing funds from your home loan's redraw facility to use for a renovation could mean paying more interest over time, despite the home loan’s lower interest rate.

This is because the loan amount will be paid back over your home loan’s term, which is typically much longer than that of a personal loan. Consider speaking to a mortgage broker for more information about redrawing from your mortgage.