Holiday Home Renovation: Why a Personal Loan Could Be An Appropriate Option?

Doing up a home is often something that people dream of.

With a bit of DIY or help from the experts, a few renovations could create your dream home.

When it’s a holiday home you’re considering renovating, the prospect might be even more tantalising.

But in lots of cases, people don’t have the cash in the bank to finance a renovation upfront, and it’s necessary to take out a loan to finance the cost of the improvements.

Here’s a quick guide to your loan options, and how to choose the right fit – particularly if you decide to go down the personal loan route.

Why Renovating a Holiday Home Makes Sense?

Whether you’re planning a new bathroom, kitchen renovations or a complete overhaul, there are lots of reasons why renovating your holiday home might make sense.

It might make it a more comfortable retreat for you and your family, and it could add value if you plan to sell or boost the rental income if you decide to rent the property from time to time.

It’s common for people to redo kitchens and bathrooms, paint the house, or add a deck or sleepout for more room. Sometimes landscaping in the garden can make all the difference. You might even add solar panels to make your holiday home cheaper to run.

As well as the cost of the materials, you’ll need to budget to pay for building consent fees if the work requires it, and labour costs if you’re not DIY-ing.

Can You Use a Personal Loan for Holiday Home Renovations?

While some people choose to top up their mortgages or home loans to pay for work like this, in other cases, a personal loan might be a more suitable option to access the money you need.

It can be a way to get quick access to the funds you need – approval can often be granted in a day or two – and there is often flexibility when it comes to how you use the money.

When you take out a personal loan through the better finance™ team, we can connect you with a personal loan that has fixed repayments for the term of the loan, allowing you to budget into the future.

It’s possible to get a personal loan, either a secured loan or an unsecured loan, for a typical renovation budget, and you can usually find a term that works for your individual circumstances and financial picture. Terms are usually available up to seven years.

Pros and Cons of Using a Personal Loan for Renovations

There are a few things to think about as you weigh up your decision – and get on with your renovation plans.

Pros

• If you opt for an unsecured loan, you won’t use your home as security for the lending, as you would if you extended your home loan.

• The approval process could be quicker than mortgage lending, too. You can usually apply online and hear whether you’ve been approved within a matter of days. That helps if you have a house project you want to get on with quickly.

• A personal home renovation loan also has a fixed term and set repayments to allow you to stay disciplined as you work towards paying off the debt.

   

Cons

• A personal loan may have higher interest rates than you would pay if you extended your mortgage, but if you’re paying it off over a shorter time, the total interest cost may be lower.

• Generally, unsecured loan limits are smaller than for a loan secured against a property, so if it’s a big budget project, a personal loan may not be sufficient.

• A shorter term may mean higher monthly instalments.

Other Loan Options for Funding Holiday Home Upgrades

If you decide a personal loan might not be the right option for you, there are other things you could consider.

Extending your home loan

If you’ve built up equity in your property, it may be possible to extend your home loan to give you money for your renovation. This will generally give you a lower interest rate, but the approval process is usually longer, and there may be more paperwork involved.

Credit cards or overdrafts on your bank accounts

If you have these credit options available to you, it might be something you consider. They are flexible and available immediately in many cases, but can be expensive. You’ll need to make more than the minimum repayments to avoid the credit card debt staying around for a long time.

How to Choose the Right Loan for Your Renovation?

• Step 1: Assess your renovation costs and budget. It’s good to have a clear idea at the start of how much your project might cost, although most people allow a little leeway in case of unexpected costs.

• Step 2: Compare personal loan offers. We can talk to you about what’s available and which lender might be a good fit for you and your project. You’ll probably look at things like the interest rate charged and any fees that might apply. It can also help to consider what early repayment fees each lender might charge you if you were to repay your loan more quickly.

• Step 3: Consider secured vs unsecured personal loans. Secured loans tend to have lower interest rates, but it means that you have to offer the lender something as security that it can use to recoup its money if you don’t pay back your loan.

• Step 4: Check your eligibility.  The better finance™ team can help you get a sense of your likely chances of approval before you apply. We’ll look at things like your income and expenses, credit history, and ability to repay your loan and meet the necessary repayments on time, and help you to determine how your application will stack up to lenders’ lending criteria.

• Step 5: Use a loan calculator to model repayments. The better finance™ website has a calculator you can use to see how much you’ll need to be prepared to pay.

• Step 6: Think about your long-term financial goals. How do the home improvements fit into your wider plan? If you’re borrowing money for a renovation project, it’s helpful to understand how it aligns with your goals.

Tips to Improve Your Chances of Approval for a Personal Loan

• Maintain a healthy credit score: The better your score, the more likely you will meet the lender’s criteria (in addition to demonstrating you can afford the loan). Make sure you’re paying your bills on time.

• Borrow only what you need: Lenders want to be sure you can afford your personal loan, and repayments are generally higher the more you borrow.

• Prepare documentation: You’ll need proof of income, identification and address.

• Consider applying with a co-borrower if you need a higher loan amount. With two borrowers, you may have twice the income to service your renovation loan.

Common Mistakes to Avoid When Financing a Renovation

There are a few things to watch out for as you embark on your improvements.

• Underestimating the total cost of renovations: It’s common for some aspects of a project to cost a bit more than expected at the start. Give yourself some room to move in your budget, and ask some experts for an indication of the likely total cost at the outset.

• Choosing the first lender without comparing options: We can help you find a lender that is a good fit for your personal circumstances.

• Over-borrowing and straining cash flow: If you know your circumstances might change in the future, take that into consideration.

• Ignoring fees and repayment flexibility: It’s important to understand what fees might apply and the total cost of any borrowing.

Frequently Asked Questions (FAQs)

• Can I use a personal loan for both small and large renovation projects?

  Yes – you might not be able to borrow as much as you would with a home loan, but you should still be able to find a personal loan that fits most common renovation projects.

• Is a secured or unsecured personal loan better for renovations?

  It will depend on your circumstances – a secured loan is likely to have a lower interest rate.

• How quickly can I get funds from a personal loan company in NZ?

  Maybe more quickly than you think. better finance™ can often get an answer within a day or two.

• Will a personal loan affect my ability to borrow in the future?

  Future loan applications will be assessed on your situation, income and expenditure at the time.

• Can I repay my loan early without penalties?

  It will depend on the terms of your loan. Some lenders may charge a fee.

Ready to get going?

If you’re itching to get on with your home improvements and want to know about your personal loan options, get in touch with the better finance™ team today. We can help you look at your financing options and find something that is a suitable fit for you and your soon-to-be dream home.