Believe it or not banks are beginning to charge for money deposited in their banks. That also means that obtaining a loan from them is at minimum levels specially if the money is invested to improve your home.
The current offer on loans for building works allows comparing several products and choosing the most economical.
Reforming a home, whether partially or for a full rehab may mean a big money outlay that not everyone can afford. For this reason, many people decide to ask the bank for a loan to pay for the works, as the entities have a wide catalogue of loans that can be used for this purpose. However, before taking out a loan, it is important to take into account different variables, such as those detailed below, so that the debt incurred does not end up being higher than expected.
Financing a reform at a good price is easy if you know how
- Loan hunting
Obtaining a credit to finance the building works in a house implies contracting a more or less high loan, but it is possible to reduce the capital that has to be paid, if certain premises are taken into account. Here are a few tricks that will help you get a personal loan for a reform with the best financing conditions.
- Establish a tight budget and allow for possible contingencies
First of all, you must assess how much money is needed, taking into account all expenses associated with works and also any possible contingencies. Once the budget is closed, pinpoint any item of works which might not be clear or well specified and allow 10% extra just in case. A scenario that must be avoided is to be in the middle of the works to find out that the job is under budgeted and it has to be stopped before it is finished. The builder has to pack up and leave to return when more capital is obtained obviously meaning more expenses and more aggravation.
- Compare multiple offers to select the most economical
After having clear how much money is needed, you should consult the conditions of several loans for this type of work and see which one offers better conditions. When comparing the price of various loans, the annual percentage rate of charge (APR) should be set, since it reflects both the cost of interest and that of commissions and other items. In addition, if a bank makes an offer, it is necessary to read all the pre-contractual information on the product to find out its total amount and its binding requirements (if it is necessary to contract insurance or other associated service to access the loan).
- Choose an appropriate repayment term
It is advisable to choose a term that allows returning the loan with ease. In that sense, financial experts recommend not to spend more than 35% of what is paid to pay the loan, because dedicating a higher percentage could cause problems to pay the interests. However, it is not advisable to choose a period that is too long, because the longer it takes to cancel the loan, the more interest will be generated and the more money will have to be paid.
If at any time in the life of the loan an extra liquidity is received, it is advisable to use that money to amortize in advance the part or the entire principal of the loan. In this way, the interest will accrue on a smaller capital and, therefore, will have to pay less.
Eco Loans to improve energy efficiency are more economical
Among credits to finance home reform there are loans designed specifically for that purpose instead of products that can be used for any project. Within the first group, there is a very special kind of credits: those used to finance works that improve the energy efficiency of the home or help to reduce consumption and CO2 emissions. Here in Spain we have: “ecoPréstamo”, “EcoCaixa”.
These products, called ecopréstamos serve to finance the following:
• Installation of solar panels, whether thermal (to heat water) or photovoltaic (to obtain electricity).
• Installation of a wastewater treatment system.
• Insulation of windows to maintain the temperature of the home.
• Installation of low-energy heating systems.
• Collecting rainwater to filter and take advantage of rainwater.
• Acquisition of efficient appliances that have an energy rating of “A” or higher.
As these credits are used to carry out actions that contribute to better environmental conservation, their financing conditions are generally more attractive to reward environmentally responsible consumers. The interest of these products is lower than that of loans for conventional reforms and, in some cases, has lower opening or study fees, which could also represents a significant saving.