People choose to renovate their homes for many reasons. It could be to fix a safety issue, to update your home’s style, to prepare a home for resale, and more.

Renovating your home is a great idea. Not only will it make your home more comfortable, but it could help you get a better price if you intend to sell your home in future.

But a renovation is expensive. You may not have enough cash upfront to do your repairs. If so, you need to know how to manage your cashflow.

If you are thinking of getting a renovation loan, check out our detailed guide about renovation loans in Singapore, including how to apply renovation loan, what to look out for, and more.

What Is A Renovation Loan?

A renovation or reno loan is meant only to finance renovations or repairs in a new or existing home.

A renovation loan in Singapore offers flexible repayment terms of one to five years. You can either get six times your monthly income or a maximum of $30,000, whichever is lower.

A renovation loan helps keep your cashflow in check as you renovate your home and prevents you from making a dent in your savings as you give your home a makeover.

Nevertheless, there are things you need to consider. You need to know the eligibility criteria, the amount you can borrow, the lenders you can choose from, and the interest rate.

You also need to know what to use the loan for, how to apply renovation loan, whether it will meet your needs, and whether you can repay the renovation loan.

What To Consider Before Getting A Renovation Loan

The lender you choose will determine the amount you get for your renovation loan. You need a renovation loan that you can manage to repay.

Before applying for a renovation loan, consider the factors below.

Criteria And Maximum Loan Amounts

Before applying for a renovation loan in Singapore, check if you meet these eligibility requirements:

• You must be a Singapore citizen or a permanent resident between 21 and 65 years old.
• You need to have a minimum income of $24,000 per annum.
• The loan amount is capped at six times your monthly income or $30,000, whichever is lower.
• You must have a fair credit score.
• You must be the owner of the property to be renovated. Or you can be a family member such as a parent, spouse, child, or sibling, with the property owner’s consent.
• You must have the required documents, such as the renovation contractor’s quotation.

If you qualify for a renovation loan, you need in-depth research on where to get your funds.

Your Lender

Depending on the extent of your renovation, you will need to borrow money from lenders in Singapore. You can choose to get your loan from:

1. Banks 

A bank renovation loan will offer you more favourable terms compared to other loans such as wedding or payday loans. However, this depends on the bank you choose and if you’re an existing customer.

You may also be allowed to repay the loan within a shorter period of time, up to a maximum of five years. It will be an unsecured loan, but you can use your home or any other asset to secure the loan if you wish. If so, you will be allowed to borrow larger amounts.

If you default on payment for a secured loan, you can be sure the bank will be after your property.

However, one major limitation is that the bank has to determine what your renovation loan can be used for, as we will see later.

2. Licensed Money Lenders 

Getting a renovation loan from a licensed money lender in Singapore will not cost you an arm and a leg.

While the interest rate for a home renovation loan from licensed money lenders may be higher compared to most banks, you can’t be charged more than 4% per month for your secured or unsecured loan.

It’s worth noting legal moneylenders are bound by the rules and regulations in the Moneylenders Act in Singapore.

Also, you can use a renovation loan offered by a licensed money lender for a myriad of home improvements, unlike banks, which tend to be more particular about what you use the loan for.

Once you are sure of whether you qualify for a renovation loan and which lender to choose, you need to know what you can use the loan for.

What You Can Use A Renovation For

A bank renovation loan in Singapore comes with a number of restrictions in terms of what you can and can’t use it for.

You’re allowed to use a home renovation loan for works related to renovation, such as:

• Built-in cabinets
• Structural alterations
• Flooring and tiling
• Electrical and wiring works
• Installation of solar panels
• Painting
• Carpentry
• Redecorating purposes such as wallpaper
• Basic bathroom fittings
• Works that are external but within the compound of the home such as the balcony

You’re not allowed to use a renovation loan in Singapore for:

• Furnishings
• Household appliances such as refrigerators and washing machines
• Air-conditioning
• Curtains
• Home entertainment systems
• Smart home devices

How To Choose A Renovation Loan 

Here are some tips on choosing your renovation loan before you figure out how to apply renovation loan.

• Check if there are any ongoing promotions interest rates: Promotions can shave off a significant amount from the total cost of your renovation loan. For instance, some banks in Singapore offer lower interest rates for customers who commit to making their homes more energy-efficient and eco-friendly. Keep an eye out for such promotions.
• Consider the interest rates and fees: A renovation loan’s interest rate can be between 3-4%, with a repayment period of up to five years. You’ll be paying both the interest every month and a part of the principal.

Most renovation loans will come with added fees such as:

• Cancellation fees
• Pre-payment fees
• Late payment fees
• Processing fee
• Insurance premium

• Ask yourself how much it will cost you: Before getting your renovation loan, ensure its cost will not overstretch your finances. Ask yourself “How much renovation loan can I get?” There are many factors that affect the cost of your home renovation and how much you can get. These include the type of home you have such as a condo, HDB flat, the extent of your renovation, the materials to be used, and the age and condition of your home.

• Your loan provider: If you already have a housing loan, consider taking a renovation loan from the same bank providing the home loan. You’ll be able to negotiate for a discount that could reduce the overall cost. Of course, you should have a good relationship with the lender for a better experience in the renovation loan approval process.

How To Apply For A Renovation Loan

As you consider what’s best for you, follow these three steps to apply for your renovation loan:

Get a quote from your contractor: Remember to ask for quotations from different contractors. This will enable you to get the best and most reasonable quotation.

Prepare the required documents:

• Digital or scanned invoice or quotation duly signed by the applicant and the contractor
• Proof of ownership
• Income documents
• Renovation permit where applicable
• Copy of front and back of your NRIC

Apply for your renovation loan: Fill up and submit your renovation loan application form online, along with the required documents.

Once you have done so, you will receive a letter of approval if all goes well.

Note that for banks, your loan disbursements are sent directly to your renovation contractor through a cashier’s order. This prevents you from using your approved renovation funds for anything other than what is stipulated. Site inspections also may be conducted.

A licensed money lender will disburse your loan in a lump sum.

If you have considered all the above factors and feel that taking a home renovation loan is cumbersome due to the amount of paperwork involved, there are other better options.

Is There Any Other Better Way To Finance My Renovation?

Fortunately, there are many options available for funding your renovation. They include a home improvement loan, secured homeowner loan, equity release, and mortgages.

However, it’s good to note most of these options may charge high-interest rates, and the fees vary to a good extent. So take the time to find a loan that best fits your needs. One popular option is taking out a personal loan.

Knowing the difference between the two loans and whether you’re capable of paying off a renovation loan in Singapore will help you make the correct decision.

Differences Between Renovation Loan And Personal Loans

We’ve listed out some ways that renovation and personal loans differ so you can choose the best option:

• Security: A renovation loan may need your home as collateral, but you don’t need any security against your personal loan. In fact, a money lender can offer you a personal loan with minimal requirements.
• Usage policy: Renovation loans can only be used for renovation-approved works such as electrical wiring. But you can use personal loans for anything such as home furnishings. In other words, you enjoy greater flexibility.
• Interest rate: The interest rate for personal loans can be anything from 3.5-11%, compared to 3-4% for a renovation loan.
• Loan tenure: Renovation loans have a shorter tenure of one to five years compared to a personal loan which you can take up to seven years to repay. Unfortunately, this may cost you more in terms of the interest you will pay.

Before deciding which loan to settle on for your renovation needs, consider the repayment terms. You don’t want a loan that will significantly impact your budget.

Don’t be deceived though – any new loan will make a dent in your monthly expenses. So it’s important to consider your repayment abilities to avoid being financially stretched.

When deciding whether to take a renovation loan, always ensure that you have the ability to repay to avoid repercussions.

Think Before You Apply For A Renovation Loan

Now that you know how to apply renovation loan, you can see it can help you to get the perfect home that fits your needs.

But renovation works can be costly. So plan carefully when taking such loans.

Think about whether you can afford the renovation loan. The key thing is to spend within your means. Consider your financial situation and what you need to accomplish with the renovations.

It all comes down to getting the right loan and lender, and determining how much you can qualify.

If you need more details on what to consider when applying for a renovation loan, BST Credit can help.

We are one of the most reliable licensed money lenders in Singapore, offering some of the most affordable interest rates and no hidden fees. Contact us now or apply for a loan today.