As owning a house is one thing, renovating is another thing to consider. Acquiring your dream house is one heck of a challenge especially here in Singapore that has limited land area. However, working for what’s best for your family such as building a beautiful home will significantly improve the quality of your life.
To ease-up the burden of renovating your house, you can opt for a loan. In most cases, there are two options to finance your planned home renovation. Thus, we have those so-called renovation loans and personal loans.
Let’s go on with the details.
In our country, there are only a few banks that offer renovation loans, and among them are POSB, DBS, and OCBC. Whichever is lower, you can either borrow for up to S$30,000, or six times your monthly income. For the payment terms, a repayment period ranging from one to five years is negotiable.
However, the renovation loan has its own limitations. First, the fact that you can only borrow at a maximum amount of S$30,000 means you could lead to insufficient funds especially if you’re planning a total home makeover.
The second disadvantage is the terms and conditions of this loan, as the name implies, it’s reasonable that the financing is strictly for renovation-related activities only such as tiling the floors, painting the walls, and organizing the electrical wires. Buying a sofa set or installing curtains are not considered as renovation-related.
Another disadvantage is on how you can get an approval. Before you can have a renovation loan, you should first submit a renovation contract or a quotation from the contractor. Besides ensuring you will only spend the funding solely for renovation, banks also want to know where their money will go. Quite frankly, this is a tedious process to take.
Another common way to raise money for a home renovation is through the tried-and-tested personal loan. Unlike in the renovation loan, the personal loan was offered in most banks and possibly have a higher loan limit. Also, you can do whatever you want with the money, and not just those renovation-related activities.
There are many differences between these two types of loans. For now, let’s see the most common concerns of borrowers.
As already said, few banks offer renovation loans, while personal loans are offered in many banks. Both offer tenure ranging from one to five years. But, banks like HSBC can offer a tenure for personal loans of up to seven years.
For document requirements, renovation loan approval is equivalent to submission of either your renovation contract or detailed quotation from your contractor, not to mention you still need a proof of your income. Personal loans, on the other hand, would only ask your proof of income.
In case you got approval, the renovation loan disbursement of cash will go directly to your contractor. On the flip side, if you got a personal loan, the disbursed cash will go directly to you.
Reading this article, you might conclude that personal loan was a better option. In reality, many still prefer purpose-specific loans such as car loans and renovation loans for believing they can offer more competitive interest rates.
While this is true to some extent, most of the time banks will offer a lower interest rate for the renovation loan is because your house was used as collateral. In personal loans, the risks are more on the bank as they don’t require collateral, instead, they’ll make a higher rate in case of default on repayments.
Also, take note that these loans use different computation methods. In the renovation loan, the interest was computed based on the outstanding balance and will decrease as you pay off your dues. Then in a personal loan, the computation is on a flat rate basis, which means the interest was fixed and will remain the same until you pay off your last outstanding balance.
If you’re still not convinced on why personal loan has more practical long-term benefits, then you must know that we are not done yet. You’re also most likely to have a higher chance to get personal loans having lower income level qualifications. Banks such as POSB, DBS, and OCBC qualify you for a personal loan if you at least earn S$20,000 a year compared to a renovation loan which is S$24,000 a year.
For details with regards to the maximum amount you can loan, as already mentioned, the renovation loan has a cap of only S$30,000. On the other hand, you can get a higher cap of personal loan if you at least earn S$120,000 year, and borrow up to 10 times the value of your monthly salary. Of course, the final amount will depend on your income and credit score.
Despite personal loans having more advantages, a renovation loan is still a viable option for certain conditions. If you can take the risk of putting your house as collateral, you can probably save more as long as can cope-up with the payment.
However, it would be wiser to let the bank themselves have more risks instead. Besides, what’s the point of building a beautiful home, just to be handed-over later to your loan provider? Come to think of it.
Here in Firstan Capital, we have dedicated teams of professional financial advisors who gave free consultations to provide your specific needs. For your home renovation, we can assure you that we have the best personal loan to suit your needs on whatever income level you’re currently in.
We are satisfying our customers and part of Singapore’s continuous economic growth since 2011. You can contact us at your most convenient time, and expect to have the best house renovation with offers of long and flexible terms while having a lesser hassle due to minimal requirements for loan approval.