Renovation Loan or Personal Loan for Your Home Renovation

Performing a home renovation project is by no means a small or inexpensive task. However, with proper planning and forethought, homeowners can ensure that their remodeling project stays as affordable as possible.

Typically, an HDB renovation in Singapore may cost in the neighborhood of $53,000 upwards depending on multiple factors. For example, a 4-room flat can cost your home improvement project within a $4,888 to as much as a $110,000 budget.

As you can imagine, a home renovation is costly, and your allocated budget is the deal breaker to get the job done. Deciding how to best fund your project will not be an easy undertaking, as your economic situation will dictate how to go about the project as practical as possible.

To help you make this important choice, we have provided the following fundamentals you need to familiarize yourself with.

Renovation Loan Versus Personal Loan

Since most people can’t afford to pay for a home renovation in cash, the first step toward budgeting for a project is to consider your financing options. And while there are a few different ways that homeowners may choose to cover these costs, we have chosen two options you may want to consider — renovation loan and personal loan from banks. Here’s how these loans work.

 

Renovation Loan

Personal Loan

Loan Amount

Capped at $30,000 or 6 times your monthly income, whichever is lower

Up to 6 times your monthly income if your income is at least $20,000

Interest Rate

3% to 4% per annum

Higher than renovation loans

Usage

Only renovation related works

Can be used for anything

Requirement

Requires documentation like renovation contract and detailed quotations

Minimal paperwork required

Eligibility

  • Singapore Citizen or Singapore Permanent Resident
  • Between 21 – 65 years old
  • Earn a minimum annual salary of $24,000 (for joint applications, at least 1 applicant needs to earn this amount)
  • Homeowner or family member
  • Singapore Citizen or Singapore Permanent Resident
  • Between 21 – 65 years old
  • Earn a minimum annual salary of $20,000

Please note that this may vary per financial institution, but eligibility is much more relaxed than renovation loan.

Things to Consider Prior to Borrowing a Loan

Personal loan: To apply for a personal loan, one must have a credible borrowing record, an essential prerequisite to obtaining any kind of loan. The loan amount is determined by your income and is usually granted up to 6 times your monthly earnings. This amount could be as high as $250,000, and fund usage is solely upon the borrower’s discretion.

Renovation loan: On the other hand, a renovation loan is much smaller in size, which is only up to S$30,000. The main benefit of a renovation loan is its lower interest rate than a personal loan at 3% to 4% per annum. However, funds can only be used for renovation-related works charted in your submitted documentation for the renovation.

Both loan types will typically extend a maximum term of five years for repayment. And before signing up for a loan, you would need to efficiently determine your comfortable monthly repayment amount to budget your monthly expenses. If you plan your financial journey accurately, chances are you will not have any issue regardless of the loan type you will take out as long as you can repay the loan in the prescribed timeframe.

What Is the Financial Implication of a Renovation Loan?

Even if you are not financially constrained, borrowing money to pay for large expenditures such as a renovation could be a more comfortable option. Rather than tapping into your savings, taking out a renovation loan will allow you the ease of not having to worry about cash flow and still accomplish your desired home improvement project.

To give you a clear picture of the loan computation amount, we have created the below table, which shows you different banking institutions and their respective offering for a $30,000 renovation loan with a tenure of 5 years.

 

Standard Chartered

Standard Chartered

RHB

RHB Bank

OCBC

OCBC Bank

Maybank

Maybank

CIMB

CIMB Bank

Interest Rate (per annum)

3.48%

4.18%

4.18%

4.2%

4.2%

Processing Fee

0%

1%

0%

0.75%

1%

Admin Fee

0%

0%

1.5%

0%

0%

Monthly Payment

$587.00

$554.94

$554.94

$555.21

$555.21

As you may notice, each financial institution has its manner of applying certain fees depending on your eligibility requirements. As previously highlighted, funds from renovation loans can only be used for renovation-related works. However, some banks offer loan extensions such as furnishing loans on top of your existing loan.

What Is the Financial Implication of a Personal Loan?

If you prefer a more flexible loan type, then a Personal Loan may be what you are looking for, as it is less restrictive in funds allocation. The table below provides data, which is based on a similar scenario previously drawn. Please note that the hypothetical monthly income of the borrower is set to $2,500.

 

Standard Chartered

Standard Chartered

HSBC

HSBC Bank

DBS

DBS Bank

UOB

UOB Bank

Citibank

Citibank

Interest Rate (per annum)

3.48%

3.50%

3.88%

3.68%

4.05%

Total Amount Payable

$35,220

$35,250

$35,820

$35,520

$36,075

Admin Fee

0%

0%

$300

0%

0%

Monthly Payment

$587.00

$588.00

$597.00

$592.00

$601.00

If you compare the personal loans available in Singapore banks, you may notice that the interest rates differ either as advertised interest rate or effective interest rate. Some banks also offer 0% interest personal loans, which are only applicable for short-term loans but come with very high processing fees.

Alternative Option for Banks’ Renovation & Personal Loan

Besides banks, you can also avail of a Personal Loan through a reputable and licensed moneylender in Singapore.

Usually, you can borrow a larger amount through a secured personal loan than an unsecured personal loan. Singapore citizens or Permanent Residents with an annual income of less than $20,000 can generally borrow up to $3,000.

In contrast, those who have an annual income exceeding $20,000 can take out a loan up to six times their monthly income. The interest rates are capped at 4%, as dictated by the Ministry of Law.

Conclusion

Loans allow the funding for abrupt cash needs. However, one must be responsible for assessing their repayment capabilities. Before starting your renovation project, you need to determine your funding source that suits your needs – a renovation loan or a personal loan.

Choose a personal loan if you plan to borrow a higher sum of up to S$250,000 and want to use it at your discretion. On the other hand, opt for a renovation loan if you wish to borrow only a conservative amount of a maximum of $30,000 only to be used for renovation purposes.

Regardless of your decision, make sure you keep in mind the best repayment methods to ensure a comfortable and hassle-free financial journey even after your renovation has been completed.

If you need a fast cash loan with minimal requirements and fast approval of loans, Raffles Credit’s personal loan can be your best option. It is among the best licensed moneylenders in Singapore that offer flexible and hassle-free personal loan terms for new individuals looking to purchase a home of their own.