Option 1: Choose a credit card wisely
A decade ago, financing with a credit card was considered a no-no, but it can now be one of the cheapest ways. Check what deal your current card offers and shop around for better interest rates, or apply for a new card with a zero per cent deal on new purchases.
The best deals offer up to 27 months of interest-free spending. To ensure you’re not hit with high rates after the promotional period ends, pay off the full amount within the zero per cent interest period, or transfer the balance to another low-interest card.
A credit card is a good way to pay for anything between £100 and £30,000 as you’re covered by Section 75 of the Consumer Credit Act – meaning you can go to your credit card provider for a refund if something goes wrong. If you have savings to cover the full amount, then use a cashback or rewards card to get something back, and pay it off as soon as you get your statement. If you need to borrow for longer, then look at balance transfer deals as you can get zero per cent for more than three years for a small fee.
If it’s cash needed to pay tradespeople, a card with a zero per cent money transfer offer will move cash to your bank account, again for a small fee.
Option 2: Consider taking out a loan
Generally, you can borrow between £1,000 and £25,000 over one to seven years with a personal loan, with rates as low as 3.5 per cent APR (the rate will depend on your credit score). When looking for a loan, check deals on comparison sites to find out what amount and payback period best suit your budget and lifestyle.
I spoke to Hannah Maundrell, editor in chief at Money.co.uk, who says that comparing loans and credit card offers is a good idea before committing to a finance plan. ‘Extending your mortgage or taking out a secured loan are great options for bigger projects, but it’s best to stick to unsecured credit on a personal loan or credit card as both are quicker in approval – on average up to two weeks compared to four to eight weeks for a mortgage,’ she says. ‘Some DIY stores also offer loans on kitchens and bathrooms, but check the interest rate as it’s likely you’ll get a better deal on a credit card.’
Option 3: Find out if you can remortgage
For large amounts of more than £25,000, a mortgage broker will help in getting the best rate. You can find one by searching directories in your local community or by visiting unbiased.co.uk – a great resource to save you the legwork.
A good broker will know the lenders to go to that take individual circumstances into consideration, and will have contacts that could help with more complex cases, such as if you need to involve a more senior underwriter for approval. Expect to pay between £300 and £500 for an experienced broker.
Option 4: Apply for a home-improvement loan of up to £200k
The new term for second mortgages or secured loans, a Home-Improvement Loan is offered through some banks and building societies as a secured loan of up to £200,000**. It’s a great option if you’re planning a major home-transformation project as the amount is fixed.
However, secured loans are usually for those still paying off a mortgage, so if you own your property outright, applying for a new mortgage to access funds may be a better option. Remember, if you are still paying off a first mortgage and it’s at a low interest rate for life, don’t be tempted to forego this in favour of a deal that seems better – in most cases the original mortgage will work out cheaper and a second mortgage will be more beneficial. Speak to a broker for personalised advice.
*According to the Bank of England; **According to USwitch