Renovation vs. Home vs. Personal Loans In Singapore
With the anticipated steady increase in demand for both public and private residential properties in Singapore, the need for home renovations is likely to rise and selecting the optimal home loans, renovation loans, or personal loans for home purchases becomes pivotal for cost-effective and efficient home improvement.
Whether you're planning to acquire a BTO/resale HDB flat, condominium, or private property, evaluating competitive interest rates, flexible repayment terms, and swift approval processes is essential. Here are some insights to help you identify the differences between home loans, renovation loans, and personal loans for home improvement plans, along with tips for making the right choice.
Is A Home Renovation Loan Different From A Home Loan Or Personal Loan?
A home renovation loan in Singapore is distinct from a home loan or a personal loan in several key ways and there are other aspects or assets which are included and valid in a home loan or a personal loan which a home renovation loan cannot or do not provide for.
Scope of use
As the term suggests, home renovation loans are strictly used for renovation-related expenses. This includes structural works like flooring, electrical works, painting, and built-in cabinetry but does not extend to non-structural or decorative elements. This is unlike home loans which are primarily for purchasing property, covering the cost of buying a house but does not extend to any renovation or decoration costs that might be incurred after purchase.
On the other hand, personal loans are highly flexible in terms of usage and can be used for anything from debt consolidation, medical expenses, travel, or even home renovations. However, unlike a specific renovation loan, it might not offer the same favourable terms (like lower interest rates) for renovation purposes.
Assets and collaterals
Home renovations loans are generally unsecured, meaning it doesn’t require an asset as collateral, while home loans are often secured against the property being purchased, which means the property itself is used as collateral to secure the loan. As for personal loans, they are usually unsecured, but secured options are available. Secured personal loans might require collateral like a car, savings accounts, or other assets.
Loan amount, tenure and interest rate
Home renovation loans are limited in terms of maximum amount (e.g. 6 times monthly income or a cap of S$30,000) and shorter tenure, but mortgage loans definitely allow higher loan amounts to cover property costs and encompass longer repayment periods.
Personal loans give more flexibility in this aspect and are variable in terms of both amount and tenure, depending on the lender and the borrower's creditworthiness.
When it comes to interest rates, there are some personal loans like UOB, Standard Chartered CashOne, GXS FlexiLoan which offer much lower interest rates (lower than 3% as of the latest rates published on 18 January 2024) than most renovation loans and home loans.
Excluded expenses
As briefly shared in the above table, most home renovation loans cannot be used for purchasing movable furnishings or appliances like sofas, beds, refrigerators, or decorative items such as curtains and light fixtures. Similarly, home loans do have exclusions and do not cover any post-purchase costs like renovations, repairs, or interior decoration. With personal loans, there are usually no specific exclusions in terms of usage, but the broader nature doesn't come with the benefits of a specialised loan like lower interest rates for specific purposes.
Disbursement process
For home renovation loans, funds are typically paid directly to the contractors, but for home loans, the loan amount is disbursed to the property seller or developer. The disbursement process for a personal loan differs from both home renovation loans and home loans as the borrower receives the funds directly and has the discretion to use them as needed.
Which Loan Is Best For My Renovations?
Selecting the most suitable type of loan for your home’s renovation really depends on several factors such as interest rates, purpose of borrowing, financial capacity to repay the loan in a certain amount of time, and many other considerations. 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 may refer to our article here, which highlights some of the important factors to note. Here's our quick round-up of the best 5 loans which you may consider for your home renovations.
| Best for | Loan Type | Loan Package | Estimated interest rate (as of February 2024) |
|---|---|---|---|
| Most types of renovations | Personal loan | HSBC Personal Loan | From 4% |
| Longer tenures | Renovation home loan | DBS Renovation Loan | From 4.88% |
| Low fees | Personal loan | CIMB Personal Loan | From 3.38% |
| Eco-conscious homeowners | Mortgage/renovation loan | OCBC Eco-Care Home Loan | From 3M Compounded SORA + 0.65% |
| Eco-conscious homeowners | Renovation loan | Maybank Renovation Loan | From 4.98% |
*Estimated data collated above is based on the respective loan package providers’ (DBS, OCBC, HSBC, CIMB) websites and February 2024’s 3M Compounded SORA rates, last updated here on 6 February 2024.
Looking for personal loan rates as low as 2.88%?
Head to MoneySmart’s personal loan calculator and comparison tool to figure it all out. All you need to do is input your details and desired loan amount and tenure, and we’ll automatically find the best options for you.
Frequently Asked Questions
Can I use a personal loan for my home renovations?
- Yes, there are many banks that offer personal loan options which you can sign up or apply for a renovation expenses for your home via your preferred bank, agents or finance platforms like MoneySmart’s Personal Loans comparison tool.
Is a home renovation loan different from a home loan and personal loan?
- Yes. A home renovation loan is different in many ways from a home loan or personal in terms of scope of use, assets and collateral, loan amount, tenure and interest rate, excluded expenses, disbursement process. You may refer the above section “Is A Home Renovation Loan Different From A Home Loan Or Personal Loan?” for more details.
Do home renovation loans offer longer tenures?
- Yes and no. Home renovation loans are usually shorter tenure loans as compared to mortgage loans which encompass longer repayment periods. When compared with personal loans, home renovation loans offer less flexibility than personal loans as personal loans are more variable in terms of both amount to borrow and the required tenure, depending on the lender and the borrower's creditworthiness.