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Adding value to your property through home improvement can come with many advantages. Not only will it increase the amount of equity in your property but it is also something you or your tenants can enjoy in the short term while you live in the property. Home improvements can range from large scale renovation projects to smaller DIY projects that increase the overall value of the home by making it more modern or functional.

There are several different ways that you can fund a home improvement project if you do not wish or are unable to pay in cash. Different methods of funding your project will have different implications for how much the project will cost in total once the term of the loan and interest rates are factored in. These options include personal loans, credit cards and redrawing on your current mortgage.

If you do decide to use a personal loan, then there are features you should be aware of before deciding on which loan is best for you. It is always wise to research different types of loans and compare some that you think may be good for you before settling on your final choice.

Why use a personal loan for home improvement?

It is often the case that people have to borrow money to pay for a home improvement because they don’t have enough cash available. There are many different ways one can borrow money, each with its own set of advantages and disadvantages. One method of paying for your home improvement project is to take out a personal loan to cover the costs.

The advantage of taking out a personal loan to complete your home renovation is that they often charge lower interest rates than credit cards, particularly if you take out a secured personal loan. This can help to keep the long term costs of borrowing money to a minimum.

Using a personal loan also ensures that the amount of time spent paying back the loan will not stretch out and as a result increase the total amount of interest paid on the loan. This can be the case with redrawing funds from your home loan to use for a home improvement project. Even though you will be able to get a lower interest rate than with a standard secured personal loan, you run the risk of letting the loan amount be paid back over the term of your home loan which will significantly increase the total amount of interest paid.

  • Lower interest rates than credit cards
  • Flexible loan features available
  • Fixed term to pay back loan


  • Fees usually charged to set up and keep loan
  • Generally charge higher interest rates than home loans
  • Not all personal loans will be flexible


Features of a personal loan

Some features of a personal loan that you should be aware of before you use one to fund a home improvement include secured/unsecured loans, interest rates, fees and the ability to make extra repayments. Finding the right combination of these features will result in a loan that is suited to your personal financial situation and the requirements that come with it.

A secured personal loan is a loan where you offer up an asset as security that the bank will sell if you fail to make the payments on your loan. As there is an added layer of security for the bank, these loans offer lower interest rates than unsecured personal loans.

Personal loan interest rates come in both fixed and variable forms. Fixed loans will have one interest rate that keeps your monthly repayment amount steady over the loan term. Variable personal loans generally have a lower interest rate than fixed loans but will be subject to rate rises according to market conditions. Deciding between the two may depend on if you require your monthly repayment amount to be consistent and how much room there is in your budget for fluctuation.

Personal loans will also charge varying fees that you should be aware of before you sign on to the loan. These could include upfront fees as well as ongoing fees. It is necessary to ask your potential lender for a summary of all the costs involved in taking out the loan you are interested in before you commit to anything.

Other available features of a personal loan include the ability to make extra repayments and pay off the loan early. Finding a loan that allows you to do both of these things will give you more control over how long you have the loan for and how much you repay in interest by the end of the loan. You will find that the faster you can pay down the loan the more you will save over time. You can investigate different loan terms, and the amount of interest you will pay with these loan terms, using a personal loans calculator.

How you can use a personal loan to add value to your home  

Porcelain freestanding bath in designed white bathroom

Using a personal loan to complete a home improvement project can be a good way to increase the value of your home and in turn increase the useable equity. The equity in your property depends on the market value of your home, so by updating a kitchen or adding an outdoor area you could potentially be upping your property’s resale value.

It is important to remember that not all home improvements will add value to your home. If this is your primary goal, then you should research what improvement is most likely to make your home more attractive to buyers. It is generally acknowledged that installing a modern, functional kitchen or bathroom space is a great way to add value to an older property.

More superficial home improvements can also add to the value of your home without being too expensive or disrupting your living arrangements if you currently reside in the property. Things like replacing old carpet in bedrooms or adding a coat of paint to the exterior of your home will assist in adding value to your home.

As you will be putting yourself into debt to make these home improvements it is most likely desirable that you will be getting some sort of return on your investment. While this doesn’t necessarily have to be monetary return, if you can avoid damaging the value of your property then this is advisable.

Home improvements that won’t add value to your home

swimming-pool in a backyard

Not all home improvements will be worth borrowing money for in the form of a personal loan. Some may actually decrease the value of your home making the upgrade less of an investment. If you want to go ahead with the project anyway, because it is something you will enjoy in your everyday life, then that’s fine but for as an investment you should beware that it may not have the desired effect.

Some home “improvements” that could fall into this category include a swimming pool and complex outdoor landscaping. Potential buyers may see these additions as difficult to maintain and hard to remove if they desire. This will then potentially reduce the value of your home.

Other renovations that will potentially have an adverse effect on the value of your home include painting the walls dramatic colours or adding obscure fixtures and fittings that may not be to everyone’s taste. Especially in an investment property that is being used as a rental, keeping the home as neutral as possible will make sure that it appeals to the widest amount of potential renters.

Another good rule of thumb is to not complete renovations that will end up costing more than around 5 per cent of the property value as it is unlikely that you will get much more than this back from the home improvement. If you are going to take out a personal loan, and put yourself further in debt, to make these changes to your home then it is wise to make sure you are not overstretching yourself for no foreseeable return.


^Words such as "top", "best", "cheapest" or "lowest" are not a recommendation or rating of products. This page compares a range of products from selected providers and not all products or providers are included in the comparison. There is no such thing as a 'one- size-fits-all' financial product. The best loan, credit card, superannuation account or bank account for you might not be the best choice for someone else. Before selecting any financial product you should read the fine print carefully, including the product disclosure statement, fact sheet or terms and conditions document and obtain professional financial advice on whether a product is right for you and your finances.

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