Cash woes? A personal loan to the rescue!

    Personal Loan for Remodelling House

    Many residents in Singapore frequently apply for a personal loan to renovate their home. However, the key issue with renovating your home is that you often have a no idea of how much the cost is going to be. For example, if your contractor says S$20,000, by the time the work is over, the cost may escalate to S$30,000. This is when a personal or renovation loan can come to your rescue.

    Personal loan vs Renovation loan

    Personal financing and renovation financing are both similar and different on several aspects. Both these loans are unsecured in nature, and are offered by all leading banks in Singapore. The tenures are also similar, going from 1 to 5 years.

    The primary differences between the two are as follows:

    • Purpose of loan: Home renovation loans are targeted at the refurbishing based on the quotes provided by contractors. Personal financing, on the other hand, does not check any documentation on the purpose for which you are taking the loan.
    • Interest rates: Home renovation financing comes at a lower interest rate than personal credit lines. For example, OCBC Renovation Loan starts from an EIR of 5.39% p.a. while its Cash-on-Instalments loan has an EIR of 11.47% for a year.
    • Loan amount: The total amount you can borrow is higher for refurbishing loans in general, starting at 6 times your monthly salary. Personal loans, on the other hand, start from a loan amount of twice to four times your monthly income (though it could go up to 10 times your monthly income as well if you have a high income).
    • Other fees: Processing charges are higher for personal loan than for the other option. Personal financing can also have other fees such as partial or full foreclosure fee.

    If you have applied for a home loan with a specific bank, you are likely to get a better rate of interest on personal financing or renovation loan. That is how most banks reward loyal customers.

    Should you apply for personal loan or renovation loan?

    In Singapore, the interest rates for unsecured loans are much higher than those for a home refurbishing loan. There are banks that offer promotional rates for personal loans, starting from 7% p.a. However, even the promotional deal will eventually turn out to be costlier than a renovation loan, as the entire sum you may end up paying on a renovation of S$30,000 will go up to S$40,000, the additional S$10,000 being interest payments.

    In contrast, the loan taken specifically for renovation can have lower interest rates – as low as 5% p.a. This means that you can save a lot on interest payments. This is one reason you should avoid applying for personal financing to remodel your home.

    However, there is often a cap on how much amount you get under a renovation loan. For example, many banks cap the amount at your income for six months or S$30,000. This amount may not be sufficient to finish all renovation work. In such instances, a personal loan might come to your rescue.

    In the end, do not forget to exercise caution and ensure you can pay the monthly repayments whether you apply for personal financing or renovation loan. If you take a loan from the bank you have taken the housing loan from, you may even get an interest-free period on your loan. 

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