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Fund your home improvements

5/ 5/2008

BEFORE you get too excited about the extra value you're going to add to your home, think carefully about how you are going to fund the work.

Making a bad decision could cost you thousands in interest repayments.

For example, choosing an expensive secured loan instead of a good-value mortgage deal to fund a £25,000 loft conversion could mean you end up paying an extra £8,310 interest on the loan over a 20-year period.

Savings

If you can afford it, using your existing savings is the cheapest way to fund home improvements.

Nearly eight out of 10 Which? members told us they funded their home improvements in this way. If you have a choice, take money from easy-access savings accounts rather than accounts on which you will pay a penalty or lose interest if you make a withdrawal.

If dipping into your savings to pay for home improvements isn't possible, you have a range of borrowing options.

As a general rule, you should go for the lowest interest rate and/or the shortest term you can comfortably afford.

Credit cards

Choosing a Best Buy credit card with a low interest rate can be a good option if you want to borrow £5,000 or less.

Current Which? Money Best Buys for borrowing include Barclaycard's Simplicity Visa card.

Even if you have the cash, it is worth considering using a credit card and then immediately paying off the balance in full.

This way, if something goes wrong with purchases that cost between £100 and £30,000, you're protected by section 75 of the Consumer Credit Act 1974.

This allows you to make a claim against the credit card company rather than the original supplier if, for example, the firm you have been dealing with has gone bust and cannot compensate you.

DIY store cards/loans

B&Q, Focus, Homebase and Wickes all offer store cards or loans, but they can be expensive to use. Barclaycard's Simplicity Visa is a Which? Money Best Buy.

Personal loan

The cheapest option, if you need £5,000 for home improvements, is a Best Buy unsecured personal loan.

For higher borrowing

If you are planning a major project such as an extension, you may need to pay for it over 10 years or more in order to keep your monthly payments down.

For longer repayment periods and higher borrowing, you'll probably have to consider taking out a secured loan (a mortgage) against the value of your property. Second-charge secured loans are never cheap, so try to add the cost of the project to your mortgage, or consider remortgaging to another lender for the whole amount if you can.