09:13 25 April 2013
In the UK, birds begin nesting in March. It's funny, then, that we humans start thinking about making improvements to our own 'nests' at around the same time.
Home improvements and DIY don't come cheap for us though, which in many cases, means borrowing to pay for them. According to Nationwide Building Society, the average home improvement loan stood at a considerable £9,570 at the end of last year.
Here we take a look at the cheapest ways to fund your DIY this spring.
Cash in on the cheapest personal loans ever!
Right now, the cost of personal (unsecured) loans is the lowest on record (so long as you are borrowing between £7,500 and £15,000). Sainsbury's Bank is the front runner when it comes to loans of this size, offering a market leading representative APR of just 5%, on a repayment term of between one and three years.
So, if you borrowed the minimum amount of £7,500 over three years, you'd pay £579 in interest.
You will need to be a Nectar card holder and to have used the card in the last six months to get this headline rate, but the Nectar card itself is free.
The loan does have an early redemption charge, so if you want to clear it early it will cost you (up to a maximum two months' interest).
Rival supermarket bank, Tesco has also just re-priced its medium-sized loan to a representative APR of 5.1%.
So, if you borrowed the minimum £7,500 with Tesco over three years, you'd pay £591 in interest.
However, the maximum term with Tesco is longer at five years. And, better still, if you're using the loan for home improvements, it's double this at 10 years.
So, if you borrowed the minimum £7,500 over 10 years, you'd pay £2,040 in interest.
Again early redemption charges apply.
Clydesdale Bank is also touting 5.1% representative APR on its medium-sized loans of the same value. To qualify for the loan you'll need an annual income of at least £15,000 or already be a customer with the bank.
By contrast, the Tesco loan only requires that you earn £10,000 a year.
Before applying for any loan, you need to think carefully and realistically about what you can afford to pay back each month. While unsecured loans are not secured against your home, missing a payment can still damage your credit score which can come with lasting implications.
Play your credit cards right with 0% interest on new purchases
If the plans for your home are less costly, or you are keen to repay whatever you borrow over a shorter period, a 0% purchase credit card might be more appropriate - and could actually cost you nothing.
Tesco tops the tables here, offering 0% on purchases for 16 months with its Clubcard Credit Card for Purchases. This will give you 16 pay days to clear the balance before you start paying interest at a representative APR of 16.9% (variable). Bear in mind though you may be offered a different rate, depending on your circumstances. You'll also earn Clubcard points when you shop using the card, and that includes stores other than Tesco.
M&S Bank has a very similar proposition with its credit card, offering 0% on purchases for 15 months, and a representative APR of 16.9% thereafter. With this card, you'll earn M&S points as you shop at M&S and elsewhere. If you spent £50 a week at M&S and £50 on fuel each week using the card, you'd earn £39 worth of M&S vouchers in a year. And if you buy M&S Travel Money using the card and you'll pay no cash advance fee.
Halifax's Online All In One credit card also offers 0% for 15 months, but with a slightly higher representative APR of 17.9% thereafter.
With all these cards however, it's never a good idea to use them to pay for home improvements unless you're sure you can pay the balance off within the respective interest-free periods. Failing to do so can prove very expensive as is clear from the interest rates stated. Remember also that credit limit you are offered could be lower than that available on a personal loan, so whether or not a 0% credit card is suitable will depend on the cost of the work.
Protecting your investment
Paying with a credit card however, does offer you a level of protection you don't get when paying with cash or debit cards. Whenever you pay for something worth between £100 and £30,000 using a credit card (even if it's just the deposit), Section 75 of the Consumer Credit Act will protect you should the goods or services turn out to be faulty, not as described or simply aren't delivered. This is because the credit card issuer assumes joint liability for the purchase with the merchant.
What's more, the Consumer Credit Directive gives you further protection on purchases worth between £30,000 and £60,260, provided you pay on a credit card.
You don't even need to pay for the full value of the goods or service to get the protection.
MoneySupermarket's editor-in-chief, Clare Francis has first-hand experience of this happening, which you can read all about in her article.
Use your savings
It's worth using a credit card for this reason when making any major purchase, but of course, if you have the cash to clear it immediately, so much the better.
So, if you can put off your home improvements for a few years, why not do it the old fashioned way and take time to save the cost?
An ISA should be your first port of call, because you won't have to pay any tax on the interest your savings earn. You can compare the ISA deals for the new tax year (which started on April 5) at MoneySupermarket's ISA channel.
If you've already used up this year's full cash ISA allowance of £5,760, check out some other competitive savings deals that will inspire you to save.
For example, the West Bromwich Building Society Fixed Rate Regular Saver account pays 4.10% AER, as long as you pay in between £10 and £250 each month, up to a maximum of £3,000 for the one-year term of the account.
With this account you can miss two monthly payments before the rate plummets to 0.50%, but your DIY will have to be scheduled for April 2014 at the earliest as you're not allowed to make any withdrawals within the 12-month term.
If you're looking for a more flexible account, the West Bromwich Building Society WeBSave Plus 3 account pays 1.80% AER, with no obligation to make regular payments each month. There's no hidden bonus inflating this rate and you can choose monthly or annual interest payments.
Of course this rate is a lot lower than the regular saver account, and you can get a little more with West Brom's Direct Bonus Account 6 (2.05%, with a 0.55% bonus), but you need a minimum investment of £10,000 to open the account which, if you had, you'd probably just spend it on home improvements.
It's important to choose a savings account which will give you the kind of access you need, because if your money is locked away for a set period, you won't be able to crack on with your DIY until it lapses.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.
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