Home improvements - be careful where you borrow!
How have Britons financed the billion of pounds spent on home improvements this year?
Mostly through personal loans, although other forms of payments have been used as well. The result is that many people have significantly overspent on their home improvement projects in the form of interest, primarily by using dealer financing rather than shopping around.
Approximately £13.9 billion in planned home improvements during half of the year were to be financed through credit and borrowing money. And this is only a portion of the estimated £57 billion total spent on home improvements during the same six-month period. Credit card financing accounted for over £3.5 billion worth of home improvements, with £2.8 billion financed through re-mortgaging, £1.9 billion through overdrafts, £1.33 billion from family, and £265 million by borrowing from friends. What this all adds up to is many Britons not paying for their home improvements using the best methods or the best research.
Because of the competitive nature in the lending industry, it literally pays to shop around when considering a loan for home improvements. This is particularly applicable in situations such as kitchen remodeling. Rather than using a retailer's financing plan, which could result in an average of £1,422 wasted on interest payments, customers could find a much more competitive loan rate and use that money more wisely, such as for upgrading appliances. One study indicated that about £1.2 billion is needlessly going to kitchen retailers in interest payments. And many Britons are planning to upgrade their kitchens or have already done so--about 20 million within the past five years, and one in four borrowed money for the project.
Rather than rely on dealer financing, one major lender advises consumers to shop around for a personal loan. This can save thousands in interest payments. Customers are misguided when it comes to dealer financing, believing that it is the least expensive or most competitive financing available, when the opposite is true. One lender's research showed that the average interest charged by retailers, 15.2 percent, was more than twice that of the best value on personal loans.
Home improvement projects are widely popular, perhaps made more so by television cooking and design shows. While smaller projects top the list of frequency, such as painting and decorating, all home improvement projects can add up quickly. The savvy shopper will not only shop around for the best deal on fabric, but on home improvement loans as well.