How Do You Apply For A Renovation Loan In Singapore?
September 22, 2022
Do you know why home renovation loans are popular? It’s because they help us cope with our ever-changing housing needs.
Picture this: you bought a beautiful home to live with your partner and kids. You and the family are overwhelmed with joy as you’ll be making lots of memories together.
But once you start living in your home, you might realise there are certain things you want to change or add to make it more functional. This is where renovation comes in.
Home renovation loans are popular because renovation can be a costly affair.
To know how to apply for a renovation loan, read this blog post and get up to speed with everything you should know about renovation loans in Singapore.
What Is A Home Renovation Loan?
A home renovation loan, also known as reno loan, is a specialised loan that helps you with the finances required to renovate your home.
The loan can be used for a wide variety of purposes such as painting, tiling, flooring, or even rebuilding damaged parts of your home.
In simple terms, a home renovation loan is an unsecured loan that does not require you to use your home as collateral. You can use it to finance different renovation aspects of your home.
But how is it different from a personal loan?
What Is The Difference Between A Renovation Loan and Personal Loan?
One of the primary differences between a renovation loan and personal loan lies in its purpose.
While you are free to spend a personal loan on anything, you can’t do the same with a renovation loan.
This is because money lenders or banks will verify how you spend a renovation loan.
Most lenders disburse the loan directly to vendors or contractors who complete the renovation works for you.
This means personal loans are more flexible than renovation loans.
But home renovation loans are easier to apply for and quicker to receive than personal loans because of their lower limits and predetermined usage.
However, you might struggle to find a good renovation loan deal because only a handful of banks offer it. On the other hand, almost every bank offers a personal loan.
Now that you know the difference between a renovation and personal loan, let’s see what you can use a renovation loan for.
What You Can Use A Renovation Loan For?
A renovation loan has limited use. You can use a renovation loan for:
- Ceiling, flooring, or wall repairs
- Bathroom fittings installation and repair
- Electrical and wiring reworks
- Built-in cabinets
- Solar panels installation
- Painting or redecorating works (e.g. wallpaper)
- Structural alterations
- External works in the home compound
This is what most banks will permit and why they will only disburse the loan amount to contractors or vendors in charge of these tasks.
If you’re looking to upgrade your furniture, home appliances (air-conditioner, washing machine, entertainment system, etc), and curtains, you’d have to find another way.
Banks do not allow renovation loans for tasks involving movable items.
How To Apply For A Renovation Loan
Applying for a renovation loan is a straightforward process.
For a bank renovation loan, follow these steps:
- Estimate the total renovation cost and see how much you need.
- Get an official, stamped quote from your contractor.
- Banks like DBS, POSB, and OCBC offer renovation loans. Register with them to file an application if you don’t already have an account there.
- Submit your loan application with the following documents:
I. NRIC (for identity and residence status)
II. Latest IRAS Notice of Assessment (for credit history)
III. Income Statements (for salary/income evaluation)
IV. Invoice or Quotation from Contractor to verify loan amount
V. Proof of Home Ownership
The bank will reply in a few days and inform you about approval or rejection.
However, please note that the bank will not send the loan amount to your account. It will be disbursed directly to relevant vendors or contractors.
This is where licensed money lenders prove flexible and beneficial for users. Let’s see how they work.
From Licensed Money Lenders
When it comes to providing home renovation loans, licensed money lenders are far more flexible than banks.
Their interest rates might be slightly higher, but their application process is less rigorous and quicker.
Licensed money lenders like Credit Thirty3 have a smooth application process that takes five minutes at most.
The application process and required documents are pretty much the same, but the added benefits make money lenders a better option than banks.
Here’s how money lenders may be more useful:
- Every money lender should be able to offer you a renovation loan, unlike banks.
- Money lenders can help you secure a loan even with an average or poor credit score if you’re honest and transparent about everything.
- The renovation loan is disbursed to you directly, not to any vendor or contractor. Thereafter, you can spend it on the home renovation as you like. In addition, banks do not allow you to take a renovation loan for furniture. Licensed money lenders do.
- Lastly, banks require you to fix a minimum payback period and may charge you extra for early repayment. Most money lenders don’t force you for minimum payback periods and are not likely to charge a penalty for early repayment.
And as stated earlier, they have quick and hassle-free application processes compared to banks.
But questions like, “How much renovation loan can I get?” often trouble homeowners in Singapore.
Now, let’s learn about loan limits, interest rates, and other terms.
What Are The Criteria and Maximum Loan Amounts For A Renovation Loan?
Renovation loans are smaller in amount. You can borrow up to $30,000 or six times your monthly income, whichever is lower.
And just like their borrowing limits, their return period is shorter. You have to repay a renovation loan within one to five years.
The borrowing limit and shorter tenure might seem strict, but renovation loans have a key benefit – interest rates.
Yes, renovations have interest rates below 5% compared to personal loans that usually range anywhere between 3.5-11%.
Besides lower interest rates, renovation loans also cost you less in terms of processing fees and admin fees. It usually ranges between 1-1.5%, which can go much higher for personal loans.
As for the eligibility, you need to:
- Be a Singaporean by citizenship or have PR
- Be 21 to 65 years of age
- Earn at least $24,000 in annual income
- Have a decent credit score
- Be the house owner or house owner’s immediate family member (parent, sibling, spouse, or child)
So should you just go and apply for a home renovation right away?
The answer is “no”. Borrowing a loan amount and returning it in time is a serious commitment, and you should think it through carefully before applying for a loan.
What To Consider Before Getting A Renovation Loan
You can do certain things to ensure you get the maximum benefit out of your renovation loan deal.
Getting A Renovation Loan In Singapore: Things To Consider
First and foremost, check your eligibility because there’s no point in applying for a loan you’re not eligible for.
Secondly, get in touch with reliable contractors and vendors to get official quotes.
This will help you estimate an accurate loan amount to fulfil your renovation needs. You may also use an online renovation loan calculator to estimate the loan amount.
Once you have an idea of how much you need, start comparing loan options from different banks and money lenders.
Check their renovation loan interest rates, fees, and terms and conditions before finalising a deal.
And lastly, make sure you have a solid and realistic repayment plan in place to avoid any financial stress in the future.
Tip: Keep an eye on discounts for home renovation as well. This can help you further reduce the cost of your home improvement journey.
Now that we’ve learned everything about home renovation loans in Singapore, let’s see how you can choose the best renovation loan deal for yourself.
How To Choose A Renovation Loan
Here are the most important factors to consider:
The first thing you should compare is the interest rate.
A lower renovation loan interest rate means you’ll have to pay fewer interest charges over the loan tenure. So go for the loan option with the lowest interest rate.
Some banks offer promotions like discounted interest rates, no-processing fees, or other such offers. Go for them if you can get your hands on such a deal.
The second cost you’ll incur is the processing fee.
It’s a one-time fee charged by the bank or money lender for processing your loan application.
Choose the option with the lowest processing fee.
The loan quantum is the amount of money you can borrow from the bank or money lender.
The maximum loan amount depends on the lender and your financial situation. Some banks have low loan limits compared to others – as low as $5,000.
The loan tenure is the period of time you have to repay the loan. It ranges from one to five years for most banks and money lenders.
A longer tenure means lower monthly installments but higher total interest costs.
Early Repayment Penalty
Most renovation loans come with early repayment charges.
It’s a fee charged by the bank or money lender if you repay the loan before the end of the tenure. So choose a loan with no or low early repayment charges.
Flexibility And Transparency
The last thing you should consider is the flexibility and transparency of the loan terms.
For example, some banks might not allow you to purchase movable items with the loan, while others might not have any restrictions.
Similarly, some money lenders may let you disburse the money in a lump sum, while banks will only disburse the loan amount to renovation contractors.
Also, some banks or money lenders might have hidden charges or terms and conditions that can make it difficult to repay the loan.
Always read the fine print before signing on the dotted line.
Get Help With Securing A Home Renovation Loan
A home renovation loan in Singapore is an excellent way to finance your home renovation project.
You can use it to make structural changes, repair ceilings and walls, install new bathroom fittings, and even upgrade your furnishings.
But banks and money lenders can often deprive you of your freedom and flexibility to spend the loan amount as you like.
This is where Credit Thirty3 stands out. We offer flexible renovation loan solutions and disburse the loan amount directly to you so you can use it to buy anything you like.
Our dedicated team of professionals can help you get your renovation loan within 24 hours.