Your home is in dire need of a repair or upgrade. Perhaps the paint is peeling, worrying cracks are appearing on the walls, the aesthetics look dated or you need more room for a growing family. Whether you live in a HDB or private home, home upgrades are a very common thing to seek.
Unfortunately, not everyone has the luxury to carry out these home improvements as they please. Renovations, repairs and upgrades are often mammoth tasks that require a large sum of money. The estimated cost of renovating your home in Singapore can range from $16,000 to more than $100,000 depending on the scope and volume of the work. Thankfully, there are options of financing from banks and private lenders that can address this specific financial challenge.
Several loan options exist for your renovations. Many financial institutions offer specialised renovation loans meant specifically for this purpose. Alternatively, personal loans are also a viable option for homeowners. We are going to examine the similarities and differences between these two loan types.
Both loans are offered by banks and private lending institutions. They generally fall under the category of unsecured loans, meaning that you don’t have to provide a collateral to obtain them. While there are lenders who require your home as a collateral for renovation loans, this is not a common practice.
Typically, these loans are considered small to moderate financing with short repayment periods. However, it’s worth noting that both types of loans are known to have early repayment penalties for borrowers, which might come as an inconvenience to some.
That being said, they share more differences than similarities, which we will examine in the next section.
Both renovation loans and personal loans come with benefits and drawbacks. We hope that by comparing them, you will be able to make more informed decisions regarding the type of financing that meets your requirements.
In general, renovation loans incur a lower interest rate compared to personal loans. A typical renovation loan will feature an annual interest rate of appx. 2.8% p.a. (EIR: 5.4%), whereas personal loans incur an interest rate between appx. 3.5% p.a. (EIR: 7.0%). Personal loan interest rates can even go as high as 9.0% per year, depending on the amount being borrowed and the repayment tenure.
Renovation loans allow you to borrow up to 6 times your monthly income, but this total amount is usually capped at about $30,000 per borrower. Personal loans usually don’t implement a limit on the amount you can borrow, but the maximum amount offered would be 4x your monthly income if you earn less than $120,000 per year, and 10x your monthly income if you earn more than that.
Just with a glance, you can tell that renovation loans actually offer a higher quantum if you’re a middle income earner. However, a high income earner with the intent to borrow more would benefit from a personal loan instead.
Personal loans offer longer repayment periods, with the standard being 7 years. For renovation loans, you will have to settle it within 1-5 years, depending on the loan quantum that you’ve been granted. Smaller loans will have shorter tenures while larger renovation loans will take longer. However, this will not stretch beyond a 5 year period.
When you apply for a renovation loan, you will have to disclose your renovation plans to the lender. The loan usage will be restricted to approved renovation works and its associated costs. These include paintwork, repairs, extensions, retiling, contractor fees, and electrical wiring.
Renovation loans offer less flexibility, meaning you won’t be able to use it to buy appliances or install curtains, for instance. Additionally, renovation loans are often disbursed directly to the contractor or company performing the work, rather than into your personal accounts. The funds will be released to the contractors through Cashier's Orders (COs). Although a maximum of 4 COs can be issued, any extra COs beyond the initial one will result in a $5 fee, which will be taken from your specified loan servicing account.
A personal loan, on the other hand, will be disbursed to your personal account, and you are free to manage it as you see fit. This includes spending on fixtures, furniture and interior decoration items not supplied by your renovation contractor.
To be eligible for a personal loan in Singapore, you have to be a citizen, PR or EP holder earning at least $1200 a month. The age of an eligible borrower depends on the lending institution, but it is usually between 18 to 70 years old. The main criteria a lender looks at when considering a personal loan application is your income and credit score.
However, for a renovation loan, you will have to prove ownership of the property being renovated, or prove that you are related to the homeowner and reside at the property. This condition will be imposed on top of the usual eligibility criteria.
The main question for many will be, which loan is the best? Well, this depends on several factors. If you want a quantum loan no more than $30,000 with lower interests but less flexibility in use, a renovation loan is the answer.
However, if you require a higher loan quantum that you can manage the way you want, then a personal loan is the way to go. Lendingpot allows you to compare loans from different loan providers and find the best one. You’ll be able to see their tenor and interest rates side by side in our easy to use interface and reach out to over 20 lending partners with just one application. Contact us to know more about personal loans and renovation loans.
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