Should I Use Personal Loans For Home Renovations?

With Singapore ramping up construction of thousands of homes to make up for delays due to the Covid-19 pandemic, there is bound to be an increase of renovations of new and resale homes. According to Singapore’s National Development Minister Desmond Lee, the numbers of constructed new homes have soared to the highest over the past five years.

Be it for private housing or HDBs, many of us have considered personal loans or renovation loans as one of the immediate or a long-term solutions to ease our cash flow for home renovations. Before making a decision, let’s take a look at some of the considerations on when to take, differences and similarities between a home renovation loan and a personal loan, and how the benefits of each type of loan can suit your needs better.

Key Differences Between Home Renovation Loans and Personal Loans

Most home renovation loans and personal loans are advertised to give you quick access to fast cash, but how can you differentiate between the two, and which one is more suitable for your situation?

Here’s a quick overview at the key differences and similarities between the two to help you make a better decision.

Comparison of Home Renovation Loans vs Personal Loans

	Personal Loan 🏦	Home Renovation Loan🏠
Application options	Personal Loan 🏦Via the preferred bank, agents or finance platforms	Home Renovation Loan🏠Via the preferred bank, agents or finance platforms
Eligibility	Personal Loan 🏦Usually 21 to 65 years of age, may not need to be the homeowner to qualify for the loan	Home Renovation Loan🏠Need to be the homeowner or be a family member residing in the house required for the renovation loan
Repayment and loan terms	Personal Loan 🏦Fixed monthly repayment amount for up to 7 years	Home Renovation Loan🏠Fixed monthly repayment for up to 5 years
Interest rates	Personal Loan 🏦Usually fixed, between 3.48% to 5.43%	Home Renovation Loan🏠Usually fixed, between 4% to 6.53%
Processing fees	Personal Loan 🏦One-time fee, between 1% to 6%	Home Renovation Loan🏠One-time fee, between 1% to 1.55%
Early repayment penalty	Personal Loan 🏦Yes	Home Renovation Loan🏠Yes
*The information above is accurate at the time of writing as of 24 July 2023.	Personal Loan 🏦

Is A Home Renovation Loan Better Than A Personal Loan?

It really depends on several factors as every borrower’s financial needs differ, thus there’s no definite answer (that suits everyone) to this. To determine which is better for you, you’ll have to take into consideration of several factors including:

Your purpose of the loan

If the loan's sole purpose is to fund home renovation or improvement projects, a home renovation loan may be more suitable. These loans are specifically designed for financing home-related expenses, and lenders may offer more favorable terms for this purpose.

Interest rates affordable to you

Generally, home renovation loans may have lower interest rates compared to personal loans. Since home renovation loans are secured by the property being renovated, lenders might consider them less risky, leading to better interest rates.

Your required loan amount

The loan amount required for the renovation project will also play a role in deciding the type of loan. Personal loans typically have lower maximum loan amounts compared to home renovation loans, which could be more suitable for substantial renovation projects.

Secured or unsecured for you

Home renovation loans are often secured by the property, which means the property acts as collateral. Personal loans, on the other hand, are usually unsecured. This means that if you default on a home renovation loan, there's a risk of losing your property.

Repayment terms that suit you

Home renovation loans might offer more extended repayment terms, making it easier to manage monthly payments, especially for significant renovation projects.

Eligibility criteria you can fulfil

Both types of loans will have specific eligibility criteria that borrowers must meet. The requirements might differ, so it's essential to check which loan aligns better with your financial situation.

Be a Singapore citizen or permanent resident

Have a good credit history/good credit score

Have a minimum monthly income of S$3,000

Be able to provide a valid renovation quotation from a licensed contractor

Be able to afford the monthly repayments

There are several factors that will determine the amount of money you’re eligible to borrow, they include your income, your credit history, and the value of your property. The usual borrowing limit is up to 6 times your monthly income or S$30,000.

The interest rates on home renovation loans are typically lower than personal loans, and there will be an EIR, known as effective interest rate, for every renovation loan you take, which is costs in addition to the base interest rate, such as the administration fee that a bank may charge. It may range from 7.5% - 15% for now, but they will still vary depending on the bank or financial institution you choose, and the overall global economic situation. It’ll probably be wiser to shop around, tap on platforms such as MoneySmart’s Home Renovation Loan comparison tool to compare rates before you apply for a loan.

Here are some of the banks and financial institutions that offer home renovation loans in Singapore:

DBS Renovation Loan
OCBC Bank Renovation Loan
POSB
Maybank
UOB Renovation Loan
Citibank
Standard Chartered Bank
HSBC
First-Choice

Keep in mind that you'll have to submit several documents including an application form, your ID, proof of income, and the renovation quotation.

Check out other Personal Loans with Low Interest Rates & Fast Approval

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Frequently Asked Questions

How can I apply for a renovation loan?

You can sign up or apply for a renovation loan for your home via your preferred bank, agents or finance platforms like MoneySmart’s Home Renovation Loan comparison tool.

Is a home renovation loan better than a personal loan?

Yes and no, this will depend on your financial capability at the time of application, your eligibility, suitability of repayment and loan terms, affordability of interest rates and other fees like processing fees, early repayment penalty, etc.To help you make a better comparison, you may refer to our “Comparison of Home Renovation Loans vs Personal Loans” section above.

Am I eligible for a home renovation loan?

To be eligible, you’ll need to meet several criteria including:

Be a Singapore citizen or permanent resident
Have a good credit history/good credit score
Have a minimum monthly income of S$3,000
Be able to provide a valid renovation quotation from a licensed contractor
Be able to afford the monthly repayments

Will my credit score affect how fast I can get my home renovation loan?

Yes. By possessing a good credit score, it will increase your likelihood of having a home renovation loan application approved much faster.

How is your credit score affected by late payments?

Your credit score is usually determined by certain factors including late payments, the amount of credit you use, established credit history, recent credit, and the number of accounts you hold. So the more late payments you make and the more credit you use will lower your credit score.

Do I have to pay an EIR for my renovation loan?

Yes, most personal loans offered by banks in Singapore do include an EIR. An EIR, or effective interest rate, is meant to reflect the true cost of taking a loan in Singapore. When you take a personal loan from a bank, there are often other costs in addition to the base interest rate, such as the administration fee that a bank may charge. EIR (effective interest rate) is much more complicated as it also takes into account any processing fees plus your repayment schedule.

Are EIRs always higher than the advertised interest rates?

Yes, most of the time it is. EIR is determined by many other factors besides the interest you are charged, which include number of instalments, frequency of instalments, whether the instalment amounts are equal or not, administrative fee or processing fees.