6 Best Renovation Loans in Singapore

With the cost of renovation going up to $140,000 for a HDB 4-room flat, it is safe to say that most people would likely need to take a renovation loan to finance their new home project.

Unlike home loans where you can apply from HDB or pay with your CPF, a renovation loan is borrowed from private banks to pay for your renovation. The loan comes with monthly payments and interest rates over a fixed period known as loan tenure.

Renovation loans typically only allow you to use the money to pay for your renovation works. Other related costs such as buying new furniture or home appliances are not included. Your options may be limited if you are looking for a pure renovation loan as not all banks provide this loan. However, you may look into personal loans to fund your renovation and even more, as personal loans provide more flexibility on how the money can be spent.

DBS Renovation Loan

If you are looking for a predictable fixed interest rate to finance the renovation of your BTO, resale flat or condo, the DBS Renovation loan is a straightforward loan to take. You can borrow up to $30,000 or 6 times your monthly salary whichever is lower.

After applying for the loan, you will receive a letter within 5 to 7 working days informing you if the loan is approved. The funds will be disbursed as a cashier order - which is similar to a cheque that is issued directly to your renovation contractor’s name. After issuing the cashier order, DBS would conduct some site visits to ensure that the loan is used for the stated renovation works listed in the quotation.

A maximum of 4 cashier orders can be requested but do note that only the first issuance is free, and subsequent cashier orders issued will be charged at $5 each. Other charges include a 2% handling fee and 1% insurance premium on the approved loan amount which are deducted upfront, so your final loan amount is lower.

If you decide to repay the full amount of the loan earlier than the tenure, there is a 1% fee charged. Cancellation fee is also at 1% and late payment fee is at $35 for each month that the installment is not paid.

The EIR is on the higher side for this loan but it is convenient for DBS/POSB account holders who want the fund to be disbursed to their contractors directly.

Find out more about the DBS Renovation Loan here.

DBS Eco-aware Renovation Loan

DBS Eco-aware renovation loan works very similarly as their basic renovation loan, with similar eligibility and loan terms. The difference lies in your renovation checklist. In order to qualify, you must fulfill any of the six items in the eco-aware renovation checklist for your home renovation works, including opting to use energy-efficient LED lighting, certified eco-friendly renovation materials and more.

If you are considering the DBS Renovation Loan, you may wish to review your renovation checklist again to incorporate some eco-friendly and sustainable items to enjoy lower interest rate and extra cost-savings in the long run with a more eco-friendly home. Not just about the money, but doing your part to save the environment will make your home a more meaningful space as well.

Find out more about the DBS Eco-aware Renovation Loan here.

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CIMB Personal Loan

The EIR interest rate and 0% processing fees are very attractive points about the CIMB Personal Loan. However, after playing around with their Personal Loan Calculator, I found that in order to enjoy the 1.60% interest rate and 3.07% EIR as well as 0% processing fee, I will need to have a monthly income of $7,500. The maximum amount that I can borrow is $30,000 over 5 years tenure, 4 times my monthly income.

I’ve also tried keying in based on the minimum salary requirement of $20,000 annually which is around $2,000 monthly salary. The interest rate goes up to 9%, EIR 16.17% and a $30 processing fee. The maximum amount I could loan is essentially only 2 times my monthly salary.

Overall, the CIMB Personal Loan’s interest rates are competitive especially for the higher income earners. You don’t need to have a CIMB Bank Account or CIMB Credit Card before you apply and the application can be done online with your SingPass. The biggest advantage would be the instant loan disbursement to your preferred bank account once the loan is approved.

Find out more about CIMB Personal Loan here.

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Standard Chartered CashOne Personal Loan

One of the personal loans with the lowest interest rates in the market, the Standard Chartered CashOne Personal Loan is suitable for homeowners who wish to maximise their savings with a bigger loan. Do note that compared to the CIMB Personal Loan, the CashOne Personal Loan requires a higher minimum annual salary of $30,000 instead of $20,000.

When I play around with their online loan calculator, the monthly repayment stands at $544.95 if you take a $30,000 loan and repay over 5 years - but it is unclear what is the range of income level you will need to be at to obtain this rate. For the exact amount that you will be able to loan and the interest rates offered to you, you will still have to consult the bank.

Similar to CIMB, the loan disbursement is convenient such that you get the cash almost instantly to the bank account of your choice upon loan approval. There is also no late penalty fees if you have paid your monthly instalment for consecutively 6 months.

Although there are no processing fees, there is a $199 annual fee charged to the first year and is directly deducted from the loan amount. For subsequent years, the annual fee is $50 if you do not pay your installments on time. This would affect the EIR so it is important to take it into consideration.

Find out more about Standard Chartered CashOne Personal Loan here.

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Trust Instant Loan

You may have heard of the Trust card that is popular for travelling and buying groceries at FairPrice. Now, there is Trust Instant Loan which is a personal loan that allows you to convert a portion of your Trust credit card available credit balance into cash. In this sense, the Trust Instant Loan works differently from traditional bank loans.

Trust has no processing or hidden fees. The only fee mentioned is the 3% early repayment fee on your outstanding principal amount when you repay your loan early. The entire process is also done via the Trust app - from application to repaying the monthly installments. On the app, you will be able to see the exact interest rate offered to you based on your loan amount, tenure and credit profile. There is a lack of a loan calculator on the website. Hence, it is unclear the type of profile eligible for the 1.56% interest rate (you also need to be an existing Trust client).

The nature of the loan also means that it is only exclusively available for those who own a Trust Credit Card, so there is still a barrier to application compared to the other personal loans. Currently, only DBS and Trust require you to have an existing relationship with them in order to take the loan.

Find out more about Trust Instant Loan here.

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GXS FlexiLoan (GXS Reno Club)

GXS is another digital bank that is owned by Grab and SingTel. It works fairly similar to Trust Instant Loan where loans are given based on your credit limit balance. The interest rate is calculated on a daily and non-compounding basis, which means that the interest is charged based on the outstanding loan balance everyday.

Similar to Trust, there are no additional fees for processing and even early repayment of your loan. However, if you are late at paying back the loan, there is a default 18% interest charged.

Apart from the FlexiLoan, GXS has a Reno Club which is a package that comes with additional perks from Grab and SingTel, specially designed for homeowners. With the Reno Club, you will get 1% off your FlexiLoan interest rate, earn 0.8% interest on your GXS savings account, get up to $160 off when you shop at Harvey Norman and Prism+ with GrabPay, and discounts with SingTel broadband and Great Eastern Home insurances.

If you are planning to take the GXS FlexiLoan for the purpose of your home renovation, it would be more worthwhile to also sign up for the Reno Club to enjoy greater savings on your loan and also outside of the loan. Do note that in order to be eligible for the Reno Club, you will need to draw a loan limit of at least $15,000 and at least 1 year tenure. The benefits are also limited to the first 1,000 eligible Reno Club customers every month.

Find out more about GXS Reno Club here.

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5 Things to look out for when taking a renovation loan

1. Loan purpose and restrictions

As mentioned, renovation loans can only be used for permanent renovation works. This includes structural and functional works such as carpentry, tiling, wiring, painting, plumbing, flooring, and built-in fixtures.

As such, renovation loans tend to have a much smaller maximum loan amount compared to personal loans. Hence, taking a renovation loan would be more suitable for homeowners who are planning to do simple renovations or partial renovations to touch up only certain parts of the home.

2. Loan eligibility and limits

Similar to the HDB loan, the bank will take into consideration your income and inform you of the maximum loan and interest rate that you are eligible for. Most renovation loans have a minimum income requirement and a maximum limit which you can borrow in proportionate to your income.

In order to take the renovation loan, you will usually have to provide proof of ownership of the property and relevant documentation such as the quotation that you got from your interior design firm. In some cases of personal loan, you might be required to open a bank account with the bank that you are loaning from.

3. Interest rate

For renovation loans, it is important to calculate the Effective Interest Rate (EIR) and not just the flat interest rate marketed by the banks. This is because the EIR accounts for the true annual cost of a loan. It takes into account not just the flat interest, but also other factors that could drive up the total cost such as administrative fees, insurance premiums and repayment methods.

For renovation loans, administrative fees could account for another 1 to 2%, and insurance premium at another 1%. These fees are usually paid upfront which means you are essentially receiving less than $30,000, but repaying based on $30,000.

4. Hidden fees and charges

Apart from administrative fees and insurance, common charges include annual fee, late payment, cancellations and even early repayment fees. These hidden charges and penalties can significantly impact the total cost.

The difference may not seem big when you are comparing between 1% and 1.2%, but when you calculate it in terms of actual dollars, the difference can be significant.

For example, if you take a $30,000 loan:

1% fee: 1% x $30,000 = $300

1.2% fee: 1.2% x $30,000 = $360

5. Total cost and savings

Renovation is an ongoing process where many changes can happen along the way. It is important to factor in some buffer for hidden costs such as application of permits, defects and worst case scenario, a complete overhaul of your interior designer. Even after receiving the quotation from your interior designer, you should not take the amount quoted to be the final sum.

It is also important to go through the item costs and evaluate if it is truly necessary to take a loan. At the end of the day, a loan is borrowed money that has to be paid back with interest and you may find yourself spending more than if you have paid the renovation off with your own savings.

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What is the difference between a renovation loan and a personal loan?

In general, the purpose and loan amount differs between a renovation and personal loan. A personal loan offers more flexibility by allowing you to use the money in various areas besides renovation, offering a higher loan amount, longer tenure and no need for proof of home ownership and payment for insurance premium. But a renovation loan is a straightforward loan that pays off your renovation directly.

While OCBC and Maybank offered renovation loans, it seems that they have slowly phased out the renovation loans or only offered them to existing customers who have taken the home loan with them. The majority of banks offer personal loans instead.

However, it is important to note that while taking a loan seems like a viable way to get your dream home, both renovation and personal loans are considered unsecured debts. The Monetary Authority of Singapore (MAS) imposes a cap on total unsecured debt you can have across all financial institutions. If your unsecured debt exceeds 12 months of your monthly income, banks must stop granting you more unsecured credit. This means that you cannot apply for credit cards or additional loans, and your credit score could be hurt. In some cases such as public or civil servant, having a high unsecured debt could also affect your job.

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