Personal Loan vs Renovation Loan: Which Is Better?

Personal Loan vs Renovation Loan: Which Is Better?

Having a new home can be exciting. However, turning it into your dream home with an uber-comfortable feel can be quite a challenge. One of the ways you can make your home the dream home is by doing a few alterations. 

Unfortunately, this entails having some cash on hand. If you are running low on cash but still keen on upgrading your home to a space that you’ve always wanted, you can always take out a loan to make it easier for you. 

There are two types of loans that we will be discussing in this article — personal loan and renovation loan. Both loans can help you achieve your dream home with various caveats. However, if you want to find out which one best suits you, check out the details below. 

What Is a Renovation Loan?

One of the best ways you can fund your home renovation is by taking a renovation loan. Banks such as DBS, Maybank, and POSB offer this, although the terms and conditions vary. 

Coverage:

Typically, this loan covers renovation-related works such as structural repairs and improvements, painting and tiling works, electrical and wiring works, and carpentry. 

Considerations:

Although it might be tempting to upgrade some of your pieces of furniture and appliances and maybe even add little luxuries in your would-be dream home, the renovation loan, unfortunately, won’t cover it.

Another thing to consider when getting a renovation home is the limited amount you will be allowed to loan. Most home renovations can cost anywhere from $10,000 up to $100,000 or even higher in Singapore. 

Features:

With a renovation loan, you can borrow up to $30,000 or at least six times your monthly salary is but this might not be enough to cover your full cost. If this is the case, you will have to pay the excess out of pocket. 

However, the good thing about getting a renovation loan is that it is very specific, and banks view this as lower risk and can let you borrow at a lower interest rate. Try getting an invoice from your home renovation vendors to increase your chances of getting your home renovation loan approved. 

Pros:

  • Lower total interest rate
  • The chances of getting approved are higher

Cons:

  • Can only be used for renovation-related works
  • The maximum loan cap is $30,000
  • You need to present proof of home ownership
  • You need to earn at least $24,000 a year
  • A limited number of banks offer this type of loan

What Is A Personal Loan?

Another loan you can take out when trying to build your dream home is a personal loan. Simply put, it’s borrowing money with the intent to use it for your gain. 

Coverage:

Most times, people use this loan to pay off debt or for use in emergencies. Having six times your monthly salary on average is enough to help you address a great many personal problems that involve enormous finances.

Considerations:

However, unlike a renovation loan, a personal loan allows you to spend the money you’ve borrowed on anything — this includes renovating your home, upgrading your furniture, and even finally getting that luxury watch you want. 

Another thing to consider with a personal loan is a higher maximum cap on the money you can loan. The amount you can take out greatly depends on how much you earn. 

Features:

Typically, Singaporeans can loan up to 8 to 10 times their monthly salary if you earn at least $120,000 a year, four times your monthly salary if you earn between $30,000 and $120,000 a year, and two times your monthly salary if you earn $20,000 to $30,000 a year. 

A good thing about getting a personal loan for home is that it requires no collateral. However, one drawback of getting a personal loan is that banks usually charge a higher interest rate. Since the interest rates for personal loans are computed based on your credit and income profile, there is still a chance you may get a lower interest rate if your scores are good.

Pros:

  • The higher maximum loan cap
  • Can be used for anything
  • No collateral required
  • All banks offer this type of loan
  • Lower minimum income requirement

Cons:

  • Higher interest rate
  • Flat rate interest

Comparison and Differences of Renovation Loans and Personal Loan

 Renovation loanPersonal loan
Which banks offer it?Only some banks offer it like DBS and Maybank. UOB, HSBC and Citibank do not.All banks and moneylenders offer it
Can you apply for a loan?You need to show a proof of home ownership. Homeowner’s family members can apply too. For joint applicants, only the main applicant’s parent, spouse, child or sibling who meets the income requirement is allowed.  Anyone can apply as long as  the income requirements are met
What is the minimum income requirement?At least $24,000 a year.  For joint applicants, the main applicant should have an income of at least $24,000 a year. At least $12,000 a year for the joint applicant.Depends on the bank.  POSB, DBS and OCBC require a minimum annual income of $20,000.  UOB and HSBC require a minimum annual income of $30,000 a year.  Moneylenders typically require borrowers to have at least S $18,000 yearly income
What is the maximum loan amount you can take out?Sole applications: $30,000, or 6 times your monthly income, whichever is lower.  Joint applications: $30,000, or 12 times the monthly salary of the lower income earner.If you earn more than $20,000 – $30,000 a year: 2 times your monthly salary. If you earn more than $30,000 – $120,000 a year: up to 4 times your monthly salary. If you earn $120,000 and above a year: up to 8 or 10 times your monthly salary. You can also get up to $200,000, from POSB, DBS and HSBC. Moneylenders can give you loan limits up to six times your monthly salary. 
Loan tenorUp to 5 yearsUp to 5 years for most banks. HSBC offers up to 7 years.  Moneylenders often set their loan tenor from 6 to 12 months 
What you can use the loan forCan only be used for renovation-related works such as repainting and tiling, electrical works, plumbing, external repairs, etc. Buying of appliances and furnitures are not included.  You can use it for anything without having to show proof of purchase.
Interest ratesIt varies between banks. OCBC offers 2.63% per annum for current house loan customers. 2.86% per annum for new applicants.  DBS and POSB offers 2.88% per annum for existing house loan customers. 3.88% per annum for non-DBS Home Loan customers. (As of 22/7/19).It varies between banks. DBS and POSB  offer rates as low as 3.88% per annum if you meet their criteria. (As of 22/7/19). Keep in mind that rates are greatly affected by your personal credit score and income profile.  Moneylenders have a maximum of 4% interest rate as MinLaw mandates   
How is interest calculated?Interest is calculated on a monthly rest rate basis.  As you pay off your loan, the interest is calculated every month and reduces over time.    Interest is calculated ona flat rate basis. Your interest rate stays the same throughout the whole loan duration.
Paperwork neededYou need your proof of income documents and a detailed contract and scope of works from your contractor. You need to present your proof of income.
How is the money disbursed?Loan amount will be disbursed to the contractor.The loan amount will be credited to your nominated bank account. For moneylenders, you’ll need to receive your cash loan in person. You can receive your cash on the same day if you submit all requirements

Should You Take a Renovation Loan or a Personal Loan?

If your main goal is to get the house of your dreams by doing home renovations and improvements, it’s best to get renovation loans. With purpose-specific loans typically having lower interest rates, you are in a better position to maximize your monthly cash flow. 

However, if you need an amount higher than the maximum cap of $30,000, you should look into getting a personal loan. Not only will you possibly get a higher loan amount, but you also eliminate the need to submit other documents besides the proof of income.

Additionally, personal loans are easy, provide you with six times your monthly salary, and have lenient requirements if you work with licensed moneylenders in Singapore.

Whether you are getting a renovation loan or a personal loan, Instant Loan offers amazing packages from Singapore’s top licensed moneylenders. Some even offer up to three loan quotes so you can compare and get the best deal. Be sure to check those out from time to time and use these deals to your advantage. 

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