What is a Home Improvement Loan?

A home improvement loan covers:

• Repairs
• Renovations
• Improvement
• Extension of Home
• Furniture, Fittings and Fixtures

Personal Loans Cost More

If you opt for personal loans to do up your home, the rate of interest for these is much higher than that of home improvement loans.

The current rate of interest for personal loans is 15% to 20% per annum while the rate of interest for home improvement loans is 11.25% to 13% per annum.

If you choose to club the home improvement loan with your home loan, the rate of interest could be the same as that of the home loan or marginally higher i.e. about 0.5% to 1% more. But this will also mean longer payback tenure.

Limit the Amount

Home improvement loans are generally taken for goods that have depreciating value and not appreciating value. Hence, you are not investing in an asset but a liability.

Hence, home improvement loans must be taken only if absolutely necessary . Do not take a home improvement loan to buy a plasma television or a crystal chandelier. Use the loan amount to buy the essential furniture and other goods your home cannot do without.

However, if you must opt for such a loan, limit the loan amount to only what is absolutely necessary.

What You Need to Know

• If your home improvement loan is for a shorter tenure like three to five years it is better to opt for a fixed rate loan. However, if you are paying your loan over a period of 10 to 15 years a floating rate would work fine.
  
  
• With long-term loans, banks generally offer a home insurance policy but no insurance on furniture and furnishings.
  
  
• A home improvement loan is often granted in proportion to your home loan i.e. up to about 5 to 10% of the home loan. If you already have a home and are taking this loan, the amount granted could range from 70% to 80% of the cost of renovation etc.
  
  
• Depending on the loan amount and the bank you will be given a free credit card.