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Buying your first apartment or house will give you an immense thrill but also a tremendous burden because you’re finally an adult through and through. That’s a nice mix of feelings.
Whether it’s a resale flat or a BTO, comes your first home renovation, which can easily fit in within Hercules’s twelve labours.
It’s not easy choosing between sooooo many options, especially if you have to stick to a preset budget. But as likely as the sun rises from the east, you’ll mess that budget up.
The cost of a home renovation is high, trust us, we have done our homework.
There’s always the question of whether a loan or a credit card is better for your home renovation. So the stress, decisions, and work add up.
Relax. We’ll help you chill down by talking you through some five financing options for your home renovation. Keep reading below.
Using your savings to renovate your home isn’t the worst idea, but it’s not the best either.
Firstly, it depends on how much money you’ve saved up. If your home renovation costs $30,000 and your savings account is home to $100,000 – sure, you can give that a go.
But are you willing to spend all of your savings?
This strategy can seem appealing to you – and many other people – because you already have that money, so why borrow more?
But here’s the thing:
You need your savings in case an emergency happens. For instance, your work position can become redundant, or the whole world’s economy will face another crisis. Or, your bank account might be thinner after hosting your wedding. The cost of a wedding is high!
Nothing is surprising anymore after COVID-19.
So, if worse comes to worst, you need enough money to tide you over until you come up with an excellent solution because in this situation:
– Chances of getting a loan are slim to none
– Chances of making rash decisions based on desperation are sky-rocketing
So basically, using your savings to pay for your home renovation can be the right solution if:
– You have enough left in your account, or:
– You can put the money back within a few months to avoid any risks
Taking a loan is the alternative to using your savings. Of course, you can go all Money Heist on the matter and fund your home renovation with gold from the Bank of Spain, but that would be tricky.
So, we’re back to the loan alternative.
There are four types of loans you can take for home renovation in Singapore:
– Renovation loans
– Personal loans
– Credit card loans
– Store loans
We’ll dissect these options below, analysing all their pros and cons so that you can pick the best one.
A home renovation loan has many advantages, such as:
– It has a meager interest rate compared to the other loan alternatives. As such, in Singapore, you can expect a home renovation loan to have a 5.3-6.2% annual interest rate.
– The tenure for a home renovation loan is 1-5 years, depending on how much you’re borrowing, your credit score, and your income level. Usually, this tenure allows your lender to arrange convenient and affordable installments that you’ll repay – almost – whistling.
– The approval chances are very high. Banks know precisely what you’re doing with their money every step of the way, and the maximum loan amount isn’t very high. As a result, banks are more likely to extend home renovation loans even to people with mediocre credit scores and incomes.
But consider the disadvantages too:
– The maximum sum you can borrow is $30,000. That sort of money is usually not enough for a complete makeover that includes carpentry, masonry, tiling, and electrical works. If you also prefer quality materials made to last, prepare to double or even triple your budget.
– You can’t use a home renovation loan for furniture, and in fact, you can’t use it for curtains or other accessories either. Home renovation loans are simply for the “hardware” part of things, and that means you’ll have to fork out the money for those things separately.
– The money goes directly to your contractor. As a result, you don’t have any freehand with doing your home renovations. Your contractor will get the money, and they’ll purchase the things you’ve agreed on to fit your budget. Besides, the bank can conduct home visits to see if their money’s spent according to the contract.
Here are some solutions:
– Pair your initial loan with another one. If the money’s not enough for what you need, break down your home renovations into steps. For instance, let’s say your first loan covers just masonry and electrical works. After these are done, get another renovation loan – or even a personal loan – to deal with carpentry and tiling.
– Ask your mortgage broker to negotiate a better deal. If you’ve just bought your apartment, your broker can help pull some strings. The usual agreement you can look forward to is a six-month zero-interest period. And although that means spewing out $5,000/ month, it’s well worth tightening your belt. The only negative is a prepayment penalty in your contract that prevents you from using this option.
You can get a personal loan after, during, or instead of a home renovation loan. Most Singaporeans will need a personal loan after a home renovation loan to pay for furniture and other decorations.
So here’s the deal:
Most people who take up a personal loan for their home renovation:
– Need more flexibility. If you want to be in charge of the whole renovation, change your mind a million times per day, and buy everything yourself – including furniture – you’ll ultimately want a personal loan.
– Need more money. Let’s be honest; those $30,000 won’t do you much good for extensive renovations. If you get a personal loan, you can borrow up to six times your monthly income from a licensed moneylender; up to ten times that amount from a bank. However, this depends on your credit score as well.
So even if you borrow a more considerable amount than with a home renovation loan, you won’t have problems reimbursing it.
The tenure for a personal loan may be longer than five years, depending on the sum you’ve borrowed. Thus, splitting your principal amount on a longer term entails smaller installments.
Of course, you have to choose a savvy and readily available financial institution for the job.
Personal loans for home renovation have disadvantages too:
– The interest rate is higher. Expect up to 10%/ year if you’re scoring a bank loan and up to 4%/ month from a licensed moneylender. These interests will snowball, so your total loan is more expensive compared to a renovation loan.
– You may not get a personal loan from the bank. If your credit rating is poor and you want a five-six figure sum, the bank may reject your application. Luckily, licensed moneylenders in Singapore don’t care as much about credit scores if your intentions – and income – are good.
If you are ready to apply for a personal loan, why not get multiple loan quotes for free here? 3 minutes is all it takes!
Using your credit card to pay for your home renovation has some advantages, but only if you’re not taking more money than you can afford to repay.
Warning: Financial experts advise you to repay their credit card bills before your next billing cycle starts because credit card interest is almost 26%/year in Singapore.
Pro tip: Make sure your credit card debt is below the Total Debt Servicing Ratio of 60% off your gross monthly income. That way, you’ve more chances of repaying your outstanding balance within a month.
That said, credit card loans are a good solution because:
– You can withdraw the money quickly. If your home renovation ordeal – ahem, endeavour – goes through an emergency, you want to solve it a.s.a.p.
– You don’t have to give any explanations. You can pay for that new sofa or baby room furniture without applying for a personal loan.
– You can benefit from zero interest. New credit cards sometimes come with a 0% interest promotion that’s available for one year. Therefore, this type of credit card is much cheaper than a home renovation loan or personal loan.
You can get a store loan to purchase furniture that you can’t afford. Compared to personal loans:
– You don’t need any proof of income
– Nobody is looking at your credit score
– You can get your money within 15 minutes
On the downside, store loans are much more expensive than credit card loans and personal bank loans – some reaching 36%/year.
But hey: Didn’t we say a personal loan with a licensed moneylender can reach up to 4%/month? That’s way more than a store loan, plus you need to go through the application process.
Well, technically, that’s true, but:
– Chances are you’ll need more than a sofa for your new apartment. That means you’re borrowing more money, and the store may not agree to that loan.
– Your licensed moneylender will arrange the personal loan reimbursement scheme conveniently. Sure, you have to do your research and pick a good agency – but the point remains: even if you’re paying more in interest, the installments will be very affordable.
Home renovation is expensive in Singapore, but you have many alternatives to pay for it. What matters most is choosing the right option for your needs.
You can also lower your costs by purchasing cheaper furniture.
As you’ve seen, all the options above have disadvantages; some people may deem these disadvantages unacceptable, while other people are willing to compromise.
So, to avoid making the wrong choice, compare your offers. Click here to get a free quote now!
