Renovation Loan Vs Credit Cards: Which Is Better For Your Home Renovation?


As with most things in Singapore, the cost of a home renovation is high. Properties are expensive.

If you’ve decided to renovate your house, it’s wise to consider different payment solutions. Some people choose to borrow from friends and relatives, while some choose loans and credit cards.

Renovation loans are affordable and seamless. By comparison, credit cards require no paperwork or credit score inquiries.

Read this article to find out which solution fits your needs best.

TLDR: Key Differences Between Renovation Loans & Credit Cards

Factors to considerRenovation loanCredit card
Interest rates and fees- About 1-1.5%/ month interest rate
- 4% maximum late payment interest rate
- $60 maximum late payment fee
- Maximum 1% insurance fee
- Average of 25% for credit card APR per year
- 26-27% average interest rate on credit card advance
- 5-6% balance transfer
- 2-3% in servicing fee
Monthly installmentsAbout $600/ month to repay a $30,000 renovation loanAbout $700 to repay a $30,000 renovation loan plus any other charges
Tenure flexibilityAn average of five years tenureYour balance is due each month. If you repay at least the minimum sum, you can borrow within your credit card’s limit next month too.
PaperworkMinimal (proof of ID, residence, income, and contractor’s quotation)No paperwork
Home renovation proceduresRestricted depending on the loan as the money is transferred into your contractor’s accountMore available choices because the money goes to you


What Is A Renovation Loan? 

Renovation loans are financial packages specifically tailored for people who need to renovate their homes.

The most significant advantage is that you’ll have to pay a reduced interest rate compared to other personal loans. That happens because your financial provider understands you’re a homeowner – and owning your property translates into an asset.

Thus, this home renovation loan will increase your asset’s value. Having a well-renovated home makes it easier for resale or rent.

But this advantage masks some drawbacks:

  • You won’t be able to use the home renovation loan for other purposes. For example, if you have leftover money, you can’t treat yourself to a nice celebratory dinner. Besides, this package covers only part of your home renovation cost, usually not including furniture or fixings.
  • This money will be transferred into your contractor’s bank account. If you’re working with several vendors, the bank can charge additional fees for transferring this money.
  • You may have to pay some insurance, depending on your financial provides. For instance, DBS imposes a 1% insurance fee if the borrower dies or becomes permanently disabled.

However, home renovation loans have flexible conditions:

  • The tenure is accommodating, varying from 3 to 72 months.
  • Renovation loans are capped at six times your yearly income or a $30,000 ceiling. As such, these packages will cover most of your home renovation costs.


How Do Renovations Loan Work?

We already mentioned the restrictions you can expect with renovation loans.

1. You have to check the conditions on your financial provider’s website.

Most renovation loans will cover:

  • Electrical and wiring problems
  • Painting
  • Built-in fixtures
  • Structural modifications
  • Installing new floors and tiles
  • Fittings in your bathroom

Although technically purchasing new furniture is part of renovating your house, banks in Singapore don’t usually cover these costs.

2. Use a renovation loan calculator.

MK Personal Loan Banner

You should use a renovation loan calculator to figure out a ballpark sum, installments, and reimbursing schedule. That way, you’ll apply for the right loan to cover your home renovation cost.

Warning: Check various banks and moneylenders to ensure you’re meeting their eligibility requirements. Remember that MinLaw restricts the maximum amounts you can borrow depending on your income level. Some financial institutions have additional conditions according to your credit score, age, and citizenship.

3. Shortlist a few contractors to find the best price and design.

The third step is to shortlist a few contractors for your home renovation.

Choose the right one(s) for your home renovation budget and needs, and discuss the necessary changes. Remember to get price quotations from all these vendors because you need this paperwork to apply for your renovation loan. Remember, a home renovation loan is a long-term commitment.

Other documents include:

  • Proof of ID
  • Proof of income
  • Proof of residence

For those with urgent renovation needs (cue toilet leakage / spoiled flooring / old kitchen), almost all financial institutions can help you with a renovation loan.

The key, is to find the financial institution that offers the best price, fast.


What Are Credit Cards & How Do They Work? 

Credit cards allow you to borrow quick cash within a limit determined by your balance. It’s pretty easy to use credit cards, all you have to do is to swipe them or provide your card details.

You can use your credit card for small sums, such as an outstanding bill or grocery shopping.

Similarly, you can use your credit card for your home renovation.

Buying furniture? Credit card. Paying contractors? Credit card. Buying extra paint? Credit card. Better yet, some of these credit cards allow you to earn miles and redeem flight tickets!

While it may be convenient to use a credit card, there are drawbacks. Let’s evaluate the pros and cons of credit cards below.

1. Convenience

Credit cards are flexible and convenient because they’re a source of quick cash right in your wallet. Although credit cards have a borrowing limit, there’s a catch:

Each month, you can purchase more things within this available balance if you’re reimbursing the minimum amount.

So, you can use your credit card to cover home renovation costs if you want alterations not included in a bank’s renovation loan. Each month, you can make new modifications and take care of additional issues.

However, you need to plan your budget carefully. You want to be able to pay the balance diligently and, if possible, in full each month. If you reimburse just the minimum amount each month, your interest rates will spiral out of control, and you’ll find yourself buried in debt.

Pro tip: Use a renovation loan calculator to compare interest rates and instalments with your credit card’s fees.

2. Installments And Interest Rates

Credit cards feature higher interest rates compared to personal loans. This is because of the immediate credit approval when you swipe your credit card.

The only way to avoid these massive interest rates is to pay your balance in full each month. But consider this:

Home renovation costs in Singapore are five-figure sums.

Unless you have a large amount of cash coming in, paying $30,000 to $90,000 will not be easy. Likely, the credit card owner will need to divide payments over several months.

If you use this strategy, you’ll be swimming in debt before you know it.

Conversely, home renovation loans are personalised and affordable. You can quickly pay them off with convenient rates of a few hundred dollars per month.

But what if you want just minor changes?

For example, light hacking, masonry, carpentry, and plumbing in your bathroom costs a minimum of $500. For smaller sums, it might then make more sense to leverage on your credit card for your home renovation.

3. Credit Card Fees

Credit cards have all sorts of extra charges compared to renovation loans. Usually, people don’t consider these details as they focus more on convenience, rapidity, and zero-interest plans.

However, after you’ve passed this potential zero-interest period, your rates start climbing. You should also add the yearly card fee, plus any other costs when you withdraw money. These costs include cash advance charges plus interest rates.

Tip: You can call the bank to cancel your credit card’s annual fees. Some banks even have automated systems for this function.


Comparing The Interest Between Renovation Loans & Credit Cards 

Let’s compare, will home renovation loans or credit cards be more suitable for you?

We already touched on this subject, so what you need to remember is to use your credit card only if you can repay the balance in full each month. Some home renovation costs are pretty high, and you need to be responsible to avoid expensive interest.

You may be tempted to spend more from your credit card, especially if yours boasts reward programs, discounts, or cashback. However, these details shouldn’t influence objective decisions such as the alterations you need in your home.

So, while credit cards are very tempting, their overall costs run much higher than renovation loans. Consider their high APRs, service charges, plus late payment fees.

If you fail to make timely reimbursements monthly, these fees that most people overlook will enhance your preexisting debt. Plus, the cash advance interest rates are skyrocketing compared to what you’re paying for a renovation loan.

Here’s an easy example. After using a renovation loan calculator, you find out that your home renovation cost gets to $30,000. You set a 60-month tenure at a 5.3% APR and your monthly interest rate is slightly below $600.

By comparison, the same loan amount and tenure will require you to repay $700+/ month if you’re using your credit card. The total interest is north of $12,000 in addition to those initial $30,000, plus you’ll need to make clockwork repayments monthly if you don’t want to face more debt.


Which Is Better For Your Home Renovation? 

Credit card loans are a worthwhile option if:

  • You’re borrowing a smaller sum of money.
  • You can make timely repayments.
  • You can reimburse your balance in full each month to avoid snowballing debt.
  • You’re within a zero-interest period and can acquit all your debt before this period expires.
  • You want your home renovation costs to include furniture or decorations that aren’t typically included in a renovation loan.
  • You have a low credit score.
  • You don’t want to deal with loan application paperwork.

By comparison, home renovation loans are better if:

  • You want to make extensive renovations that require more massive amounts.
  • You want flexible tenures and low monthly instalments.
  • You want to save money in the long run.


Save Time With Our Home Renovation Loan Search Engine 

Feeling lazy to do the search?

Alright, we feel you. If you just want to get more information or just want to get an estimate on how much you can borrow, you can use our free search tool here!

With this, you might just be able to find the best home renovation loan to build your dream home!