It's high season for home improvements - but how are you going to pay?
Shop around
Many specialist home improvement firms offer to arrange loans to pay for their work. It's convenient but watch out - you may be paying over the odds.
Do your sums
Always shop around for the best rates when you are raising money. Compare annual percentage rates (APRs) which lenders must always display prominently, but also consider how long you'll be making repayments. A low rate over ten years can work out more expensive than a higher rate over five. Ask how much you'll be paying in total.
So what are your options?
Extend your mortgage
For costly projects like new kitchens, bathrooms or double glazing, this is likely be the way to get your money at the lowest interest rate. Ask your current mortgage lender, or take the opportunity to swap lender if you can get a better deal elsewhere. But remember that if you repay over a long period the final amount could exceed what you'd pay with a shorter but higher-rate loan.
Get a personal loan
No need to use your existing bank. Decide how much you need and how long you need to repay it then
compare interest rates on the Internet.
Rates may be may be lower if you buy loan insurance at the same time, but remember you'll pay more altogether, so check that you really need the insurance.
Credit card
Convenient and may be OK for small items but an expensive way to pay big bills if you have a card with a high APR. For up-to-the-minute information on the best deals check the Tiscali
credit card search engine.
Credit offered by retailers
Always check the APR. Remember you are free to shop around.
To get the best deal, make raising the money as much part of your planning as what materials to buy. Work out how much you need and get the funds arranged in advance.
Advice from the experts
Independent financial adviser Patrick Connolly of Chartwell Investment says: "In general terms, if you are looking to borrow money there are two major considerations, the interest amount you are likely to pay, and the flexibility of how much you can pay over how long. Some borrowers will be more interested in flexibility than others.
"It will always be cheaper to borrow money by adding to an existing mortgage rather than taking out a loan. This is because an existing mortgage is a secured loan, with the loan secured against your property. If you default on your payments the lender has a claim over your property. As a result there is very little risk to the lender. Where as a loan is usually unsecured, which means the lender is taking more of a risk, which means the lender will charge higher interest rates.
"If a borrower is able, in most circumstances they would be advised to add to their existing mortgage rather than take out a loan. As mortgages have become more flexible this allows borrowers to not only get lower interest
rates but also an increasing amount of flexibility."
