Renovation loans in Singapore work largely similar to personal loans, but there are crucial features you need to be aware of. If you’re thinking of getting one, read this in-depth guide first to understand how renovation loans work in Singapore.

A home renovation is a massive undertaking, both in scope and in a financial sense. It is not uncommon for even a simple refresh to cost a cool five figures. So while it’s ideal to plan ahead for a home renovation, we may not be able to save up the funds we need. 

In such a case, many homeowners commonly turn to renovation loans to provide the funds they need. But before you look for one, it’s helpful to understand how a renovation works in Singapore, the restrictions such loans come with, and whether a renovation loan is truly your most convenient option. 

Table of contents:

• What is a renovation loan?
• How does a renovation loan work?
  • Renovation loan fees and charges
  • How is a renovation loan disbursed?
• What to consider when choosing a renovation loan?
• Personal loan vs renovation loan for home renovations
• What is the application process for renovation loans?
• Frequently Asked Questions (FAQs)

What is a renovation loan?

A renovation loan is a type of bank loan homeowners can use to pay for a home renovation. 

Like a personal loan, a renovation loan offers fixed monthly repayments, loan tenures of 1 to 5 years, and competitively priced interest rates. 

Renovation loans are offered on an unsecured basis; no collateral is required to apply for the loan. As such, renovation loans count towards your MAS-mandated borrowing limit, which is capped at 12x monthly income. 

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How does a renovation loan work?

Renovation loans can only be used to pay for actual renovation work, and nothing else. It cannot be used to pay for new furniture and home appliances; you’ll need to finance these purchases via other means, such as your own savings, or using credit card instalment payment plans. 

You can borrow up to 6x your monthly income in a renovation loan. When applying with a spouse, parent, sibling or child, you can borrow up to 12x of the lower monthly income between the both of you. 

However, regardless of your monthly income level, the maximum amount you can borrow is capped at S$30,000 per renovation loan. 

Renovation loan fees and charges

Renovation loans come with their own fees and charges, namely:

How is a renovation loan disbursed?

A distinguishing feature of a renovation loan is how the funds are disbursed. 

Unlike a personal loan, which is disbursed in cash to your bank account, a renovation loan is disbursed in the form of Cashier’s Orders. These are akin to cheques, and are made out to your appointed renovation firm or contractor. You can pass the Cashier’s Orders to your contractor as payment as the work progresses. 

You can request for multiple Cashier’s Orders for your renovation loan, depending on the payment schedule agreed between you and your contractor. This allows you to have better control over your payments and helps protect you against fraud. 

Note that Cashier’s Orders come with a small fee, and any lost or misplaced Orders will cost money to replace. 

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What to consider when choosing a renovation loan?

Interest rates 

While interest rates for renovation loans are competitive and affordable, it is still important to get the lowest interest rate that you can. This is because renovation loans typically have a large amount, and even a small difference in interest rate can save you a tidy sum over the long run.

For a more accurate comparison, refer to the Effective Interest Rate (EIR) on the loan. This is because the advertised interest rate for a renovation loan may appear low, but could add up to a higher EIR, depending on how the loan is calculated. 

Fees and charges

Another essential consideration when choosing a renovation loan is the fees and charges, especially the admin or processing fee and the insurance premium. This is because both are charged based on a percentage of the principal loan, which could be substantial in dollar terms. 

For instance, for a S$30,000 renovation loan, a processing fee of 1% would be S$300, whereas a 1.25% fee would be S$375. Add to that the insurance premium of another 1%, and that’s several hundred dollars deducted from your loan right out of the gate. 

Loan tenure

Renovation loans in Singapore provided by banks come with loan tenures of 1 to 5 years. This offers some flexibility in repayment, as you can choose a longer repayment period to pay lower amounts each month. 

Bear in mind that because interest is charged per annum, the longer your loan tenure, the more interest you will end up paying in total. It is advisable to choose a shorter loan tenure, but only if you are able to manage the monthly payments. 

Offers and rewards 

You can earn offers and rewards when signing up for a renovation loan, provided you know where to look.

One of the best ways is to search for a renovation loan on our comparison page, which contains details on the rewards we are currently offering. Once your renovation loan application is approved, you will be entitled to the relevant reward.

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Personal loan vs renovation loan for home renovations

Renovation loans and personal loans can both be suitable options to fund your home renovations, but there are crucial differences to note.

Firstly, renovation loans allow up to 6x your monthly income (12x for joint applications), capped at S$30,000 per loan. Meanwhile, personal loans allow up to 4x monthly income for the average earner (8x for those earning S$120,000 or more per annum). 

Assuming you need to raise S$30,000, and you are earning S$5,000 monthly, you will need to get a renovation loan to achieve your fund target. A personal loan will only provide S$20,000 (4x S$5,000).

However, if you’re earning S$7,500 per month or more, then you are free to choose either a personal loan or a renovation loan to meet your S$30,000 target. But why would you want to choose a personal loan instead?

That’s because of the second main difference between the two: personal loans have no restrictions in terms of what you spend it on, whereas renovation loans can only be used for renovation works. Such works must be listed in the official project quotation that you have to submit when applying for a renovation loan. 

What this means is that personal loans are much more flexible than renovation loans, both in usage and in application. This is further reflected in the way both loans are disbursed – in Cashier’s Orders for renovation loans, and in cash for personal loans. 

In short, renovation loans can help those with lower incomes borrow a larger amount than they could with personal loans, but come with certain restrictions. On the other hand, personal loans can match or exceed the quantum of renovation loans for those earning a high enough salary. They also have no restrictions, and are thus more flexible. 

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What is the application process for renovation loans?

In general, the renovation loan process goes something like this:

1. Search for and compare available renovation loan packages. This will give you a good idea of the prevailing interest charges.
2. Choose the renovation loan package you want. 
3. Check to see that you fulfil the eligibility criteria of the loan.
4. Gather the necessary supporting documents, such as renovation project quote, proof of ownership and income documents.
5. Submit your application for your renovation loan online, together with the required documents.
6. Wait for your loan to be processed. The lender will contact you on further steps. 

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Frequently Asked Questions (FAQs)

A renovation loan can only be used to pay for the work required for a home renovation. This includes items like carpentry, hacking of tiles and masonry, painting, electrical wiring and installation, etc. 

It cannot be used to purchase furnishings and appliances, even though you may have planned for them as part of your home makeover. 

A renovation loan offers an affordable option for obtaining the funds you need for a home renovation, which can be a substantial amount, depending on the extent of the work required. You can also take up to five years to repay your loan, making for more manageable monthly repayments.

As renovation loans allow you to borrow up to 6x your monthly income, they may be a more viable choice than a personal loan, which is capped at 4x monthly income for the average earner. 

Single applicants may loan up to 6x their monthly income, while joint applicants (with a spouse or immediate family member) are limited to 12x monthly income, based on the lower income of the two. 

Notwithstanding the above, the maximum sum you can get in a renovation loan is S$30,000. 

Read these next:

How To Apply For A Renovation Loan In Singapore?