Personal Loan vs Renovation Loan: How Do You Make Your Choice?

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Now that you have the keys to your dream, the next thing that you are thinking about is probably renovation. You want your new home to be THE dream home. Also, you don’t mind spending good money to build a comfortable living environment. But you do not have so much cash on hand to pay for the renovation works. So, you decide to take up a loan to renovate your new home. Then, here comes the dilemma. What kind of loan should you choose to get that dream renovation?

There are two kinds of loans that you can take to pay for your renovation: Personal loan and renovation loan. To help you make a smarter decision on which loan to go for, we identify the best loan options available to you.

1. Interest rate

First, let’s compare the two from an interest rate perspective. Out of these two types of loans, which loan is the cheaper option?

A personal loan is an unsecured loan that banks offer to you based on your credit history and ability to return the loan. When you apply for a personal loan, the bank doesn’t question where you are spending your money on. You could be borrowing to buy your favourite Rolex watch, fund your wanderlust or even renovate your home.

As long as you are deemed to be able to return the loan based on your monthly income, the bank will approve the loan. As such, banks typically charge a high-interest rate to account for the greater risk that they are taking.

Since renovation loans are catered for specific types of expenditure, the bank has more visibility on how you are spending. This gives the banks much more confidence that you are spending the loan amount on a necessity. And if things really go wrong, the banks know that you still have a property which they can take as collateral. Banks are thus willing to offer a lower interest rate if you are taking a renovation loan compared to personal loan.

Bank Loan Tenure Loan Amount Effective Interest Rate (EIR) Monthly Repayment
DBS 1-5 years S$10,000 5.11% p.a. to 8% p.a. S$186 to S$854
POSB 1-5 years S$10,000 5.11% p.a. to 8% p.a. S$186 to S$854
CIMB 1-5 years S$10,000 4.85% p.a. S$187 to S$847
RHB 1-5 years S$10,000 5.24% p.a. to 6.69% p.a. (Promotion) S$188 to S$855

Therefore, while renovation loan is also an unsecured loan, it charges a relatively lower interest rate compared to personal loan.

Verdict: Renovation loan

Read also: 4 Important Things You Need to Do When Getting Personal Loans

2. Loan quantum

The next question to ask is, “How much can I borrow from renovation and personal loans respectively?”. The average renovation cost for a 4-room flat is around S$40,000-S$60,000, depending on your choice of furniture. You would typically need to borrow S$40,000-S$50,000 for your renovation if you do not have much spare cash. This is especially so if you have just paid for a significant sum of your new home in cash.

In Singapore, renovation loans have a ceiling of S$30,000. For example, OCBC allows you to borrow up to six times your monthly income or S$30,000, whichever is lower. Some banks also have a minimum borrowing amount. In the case of OCBC, the minimum borrowing quantum is S$5,000.

In terms of loan quantum, personal loans hold an edge. As long as your salary is deemed to be suitable for loaning more than S$30,000, the bank would be happy to lend to you. For example, HSBC Personal Loan allows you to loan up to eight times your monthly income.

Verdict: Personal loan has a slight edge

Related: Home Insurance: Your Fire Insurance Isn’t Enough. This is What Your Insurance Should Cover

3. Loan tenure

So, how long can you take to repay your loan for personal and renovation loan?

Banks in Singapore allow you to take up to a maximum of five years to repay a renovation loan. On the other hand, personal loans have loan tenure up to seven years. Thus, if you are looking to repay your loan through a longer time period, a personal loan might be a better option for you. However, don’t forget that the longer you drag your loan repayment, the more interest charges you will accumulate.

Verdict: Personal loan has a slight edge

Read also: Beginner’s Guide to Taking a Personal Loan

4. Special Situations

How about using a personal loan to supplement renovation loan?

Wait a minute. Instead of just comparing between renovation loan and personal loan, some of you might be thinking of an out-of-the-box solution. Why not use a personal loan to supplement a renovation loan? Since renovation loan has a maximum loan quantum of S$30,000, why not top up the rest using a personal loan? Moreover, it is not uncommon for contractors to burst your budget. If your renovation loan becomes insufficient, your personal loan can make up for it.

Personal loan promotions

From time to time, banks will run promotions for their personal loans and offer a promotional interest rate or vouchers upon approval. Take these offers into consideration, and they lower your effective interest rate and could very well be more competitive than renovation loans.

If you’re contemplating a personal loan, make sure you compare the interest rates on BankBazaar to get the best deal.

Read also: 10 Practical Ways Singaporeans Can Save on Renovation


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