Should You Take an In-house Renovation Loan From Your Interior Designer?

Despite your best efforts, home renovations can and do run over budget, creating a sudden need for additional funds. 

Homeowners who have already borrowed up to the maximum renovation bank loan limit of S$30,000, or those who do not want to take out an additional personal loan from the bank, may be tempted to instead take an in-house loan offered by the interior design firm they have engaged. 

While this may seem like a timely and convenient solution at the time, taking up such a loan just to complete your renovations may turn out to be a bad idea. 

Not to jump the gun, but, if you’re offered an in-house renovation loan from your interior designer, you should not take it up unless you have no other option. Here’s why. 

An in-house renovation loan is probably offered by a licensed moneylender

Firstly, let’s get one thing straight. In order to legally lend money in Singapore, entities have to apply for the proper licences. These licences are only reserved for financial institutions, such as banks, finance companies and licensed moneylenders. 

As such, interior design firms are unlikely to have the proper licensing to offer unsecured loans in addition to their renovation services. And for the rare few that do, they will likely advertise both tracts of businesses because hey, it’s another revenue stream, so why not?

In that case, how do interior design firms offer you an in-house renovation loan? The most likely answer is that they partner up with a financial institution, one that is licensed to furnish unsecured loans to the public. 

It is possible that an interior design firm may partner up with a bank to offer its renovation loan packages to clients – but if there are any out there, we haven’t heard of them. 

However, it is much more likely that the party offering the loan is a licensed moneylender. Given how highly competitive the licensed moneylending industry is, it’s not hard to imagine moneylenders partnering up with interior design firms in an effort to reach more potential customers. 

Licensed moneylender loans have every high interest rates 

There’s nothing wrong with your interior designer offering a loan from a licensed moneylender per se, as long as the moneylender is properly licensed and in good standing, you can be assured of a professional and above-board experience. 

The issue is that the interest charged by licensed moneylenders is significantly higher than those charged by banks and finance companies – in some cases, easily outstripping your credit card interest rates!

You need to know that licensed moneylenders are allowed to charge interest of up to 4% per month – compared to bank renovation loans that go for between 3.2% to 4.55% per annum. 

Here’s a quick comparison between a licensed moneylender loan and a bank renovation loan, using the respective providers’ online calculators. 

Both sets of results are for a renovation loan with S$20,000 and with a repayment period of 2 years. 

Here’s a summary of the results:

Moneylender loan	Bank renovation loan
Monthly instalment: S$1,311.74	Monthly instalment: S$870.10
Total interest paid: S$11,481.75	Total interest paid: S$882.44

Are in-house renovation loans from interior designers common in Singapore?

Well, we haven’t really found any online, and the majority of the search results for “in-house renovation loans” come from licensed moneylenders.

So it would appear that interior designers offering in-house renovation loans aren’t really that common in Singapore. This shouldn’t be surprising, given how well-served the market is, with an abundance of bank and finance companies offering competitively priced renovation loans here. 

What to look out for when applying for a renovation loan 

Regardless of whether your renovation loan is from a bank or your interior design firm, you should look out for the following when considering a renovation loan offer.

Interest rate

As we’ve illustrated above, the interest rate on a renovation loan (or any type of credit, for that matter) is the single most important factor. 

A loan with a high interest rate is much more difficult to pay off, and even a rate that is just slightly higher can translate to a big difference in dollar terms. 

This is exacerbated by the typically large sums required when embarking on a home renovation. 

Loan tenure

Another crucial factor is the tenure of the renovation loan. Bank renovation loans typically allow between 1 to 5 years for you to repay the loan. This allows you to spread your debt out, resulting in lower monthly repayments that are easier to manage. 

Note, though, that the longer your loan tenure, the more interest you will have to pay in total. However, it is far better to choose a longer tenure so as not to overburden yourself. 

Many licensed moneylenders are unwilling to extend a loan tenure longer than 12 months, which means your renovation loan monthly repayments will be very large – maybe even larger than you can comfortably afford. 

In that case, you should not proceed with the loan, as you run the risk of falling into a debt trap and racking up never-ending penalty charges.

What to do if your interior designer offers you an in-house renovation loan

On the rare chance your interior designer offers you an in-house renovation loan, be sure to carefully study the terms and conditions of the loan, particularly the interest rate and loan duration. Also, ask for the identity of the loan provider, and verify against official channels. 

If the lender is a moneylender, you may check the Ministry of Law’s official list of licensed moneylenders. Make sure that the moneylender is not suspended or blacklisted. 

If you’re being told that the in-house loan is offered by a bank, don’t just take your interior designer’s word for it. Independently check with the bank in question, and make sure the interest rate, tenure, fees and charges, and other terms and conditions are identical. 

But like we said, in-house renovation loans are not very common in Singapore, so your chances of encountering one is likely to be low.