Things are working out well for you, so the next thing you are looking at is possibly renovation your home. You would like to make it your dream home. Again, you do not mind putting a good amount to create a comfortable living area for you and your family.
But then it happens you don’t have sufficient funds on hand to cover the renovation work. What do you do in such an instance? You could decide to get a loan to make the renovations to your home. But then, you are faced with a dilemma.
What type of loan do you need to make your dream renovation?
Luckily, there are 2 types of loans you may get to fund your renovation project: Personal loans and renovation loans offered by moneylenders in Singapore. To assist you to make the right choice on the loan to get, here is a look at the best loan choices available for you.
How long will it take to pay back your loan for both personal and renovation loans?
In Singapore, banks will let you a maximum of 5-years to pay back your renovation loan. On the flip side, personal loans come with a loan period of to 7- years. Hence, when you would like to pay back your loan for a longer period, the personal loan would be a preferred option for you.
But then again, keep in mind that the longer your loan repayment is, the more you will end up paying in interest charges.
Finding: Personal loans have a slight edge based on a longer period for repayment.
Your next question to consider is, ” What amount am I able to borrow from personal and renovation loans respectively?”.
On average a renovation loan for 4-room flat costs about S$40,000 to S$60,000, based on the choice of furnishings. Therefore, for your renovation, you will normally need to take out an amount of S$40,000 to S$50,000 when you don’t have the cash on hand. This may be the case if you’ve just paid a significant cash amount for the new home.
Renovation loans in Singapore have a limit of S$30,000. For instance, OCBC lets you borrow a total of 6 times your income for each month or S$30,000, the one that’s lower. Also, some banks have a minimum borrowing amount. For instance, OCBC has a minimum lending amount of S$5,000.
Considering the loan amount offered, personal loans are advantageous. Provide your salary is considered to be befitting for a loan exceeding S$30,000, the banks will be happy to offer the loan to you. For instance, HSBC offers personal loans which can amount equal to 8 times your salary for each month.
Finding: Personal loans are advantageous for the large amount they offer.
The personal loans are unsecured loans that moneylenders and banks will extend to you depending on your record and ability to repay the loan. Usually, when you request for a personal loan, moneylenders will not question what you will be spending the money on.
Why then would you borrow a personal loan? You can borrow to purchase a favorite Rolex watch, renovate your home or finance your wanderlust.
Provided the lender has confirmed that you are able to pay back the loan depending on your income for each month. It is likely the moneylender will approve your loan. Normally, banks will charge a high-interest to cover the greater risk involved that they are undertaking.
And because the renovation loans are provided for particular types of expenditure, a moneylender or bank will have a view of how you will spend it. This provides the lenders more confidence since you will be spending the sum on a necessity.
Also when things do not go as planned, the lenders know that you have an asset that they could take as security. Banks and moneylenders are hence willing to provide a lower interest when you are getting the renovation loan than on a personal loan.
So, although a renovation loan is even an unsecured loan, it attracts relatively lower interests compared to the personal loan.
Finding: Renovation loans have an advantage of lower interests.
Can a personal loan be used to supplement a renovation loan?
On this point, rather than just making a comparison between personal loans and renovation loans, a few of you are considering an out-of-the-box financial solution.
Why not get a personal loan to add-on the renovation loan? In looking at the renovation loans in Singapore that have a maximum loan amount totalling S$30,000.
So, why not cover the difference by taking out a personal loan? What is more, it happens more often than not that contractors will blow your budget. So when it happens that your renovation loan is insufficient, then the personal loan will compensate for the deficit.
Personal Loan Promotions
Every now and then, you will find that banks and other lenders will have promotions on their personal loans. Hence they give a promotional rate of interest or even vouchers once your loan is approved.
Why not take these promotional offers into consideration? These offers will often reduce your effective interest rate (EIR) and can as well be more competitive compared to the renovation loans. When you take advantage of such offers and you are able to pay back the loan money, you will then be able to save a substantial amount in interests.
Therefore, weigh the options and look at your ability to repay the loan on time.
Though borrowers are spoilt for choice when it comes to choosing a suitable loan, it is important that you consider your income, the amount you need and your ability to pay back a loan. Even with this, do you know where to source for the funds you need?
Luckily, Singapore has trusted sources of funding such as banks and moneylenders who can offer you the financial support you need. However, be cautious as you seek a loan to only deal with the legal lenders in Singapore.
Importantly, know how to recognize an illegal lender and avoid falling a victim to their scam.