You may need a renovation loan for many reasons. For example, you just bought an HDB flat that’s a little… subpar. Or, maybe, your home’s wiring has become faulty during the last few years.

So, whether your home needs a complete makeover or just a few touch-ups, consider a renovation loan.

Using all – or most – of your savings for renovations is never a good idea. Remember that experts advise people to stash at least their 3-6-month income in an emergency account.

That being said, let’s see what a renovation loan can do for you in Singapore. We’ll discuss what you can and can’t use it for, eligibility conditions, requirements, and how to choose the best loan option.

Keep reading below.

What is a Renovation Loan?

A renovation loan is an unsecured loan you’ll take from a bank or moneylender to repair your home.

So there’s that first good news:

As renovation loans are unsecured, you’re not putting your house as collateral. So there’s no risk of losing your property if you can’t reimburse the loan.

Secondly, you’ll repay the renovation loan in fixed monthly instalments during a 1-5 year tenure, depending on how much you’ve borrowed.

The interest is:

  • Around 3-4% p.a. at banks in Singapore
  • Maximum 4%/ month at licensed moneylenders

Other fees apply:

  • Some banks may require a 1% processing fee
  • Other financial institutions can impose a 0.5% admin fee
  • The maximum admin fee that licensed moneylenders in Singapore can set is 10%

The maximum sum you can get is:

  • $30,000 or:
  • Six times your monthly income – whichever is lower

So, if you take a $20,000 renovation loan for five years, your monthly instalments will be $370-$400 with the above rates and charges in mind.

Personal Loan Vs. Renovation Loan

Renovation loans have several disadvantages compared to personal loans, such as:

  • You have access to smaller sums. For example, if your monthly income is $6,000, you can only access $30,000 maximum.
  • Your tenure is shorter with renovation loans. However, your agent can set a personal loan for longer than five years.
  • The difference between instalments is negligible. Even if personal loans from a bank have slightly higher interest rates, your overall instalments will look similar. For example, a $20,000 personal loan for five years will cost $400-$430/ month.
  • Personal loans are more versatile. You can only use a renovation loan for specific works, like tiling, flooring, carpentry, masonry, or wiring, but not buying furniture or accessories.
  • The money isn’t transferred to your account. Your contractor will get that cash if you choose a renovation loan.

So why get a renovation loan?

Well, apart from saving about $50/ month from instalments, the other significant advantage is this:

You have more chances of obtaining that renovation loan even if your income and credit score is lower. The bank or your licensed moneylender will know precisely what you’re using the money for, and so they deem this option less risky.

For What Can You Use A Renovation Loan?

You can only use your renovation loan for works that involve:

  • Hacking: hacking, rebuilding, or plastering walls
  • Masonry: flooring, tiling, and wet works
  • Carpentry: personalised solutions for built-in wardrobes, cabinets, or storage features
  • Ceiling & Partition
  • Plumbing Works
  • Electrical Works
  • Painting
  • Cleaning & Polishing

So, you cannot use your renovation loan:

  • Home decorations
  • Accessories (curtains, carpets, covers, etc.)
  • Furniture

Pro tip: If you ultimately want to have these other things too, you can:

  • Negotiate your loan conditions. A few licensed moneylenders in Singapore offer renovation loans that include furniture purchases.
  • Get a personal loan or store loan for the items that the renovation loan doesn’t include

That said, here are the most common repair and restoration work that people in Singapore use their renovation loans for:

  • Fixing a crumbled roof
  • Improve cracked or dented floors
  • Repaint walls
  • Expanding your house if you need a baby room, office, or patio
  • Repairing plumbing blockages or leaks that would otherwise flood your home
  • Fixing a faulty electrical system that could potentially cause a fire
  • Home remodellings, such as cabinets or wardrobes that would make your home look more stylish and therefore sell at a higher price
  • Fencing and external works

Pro tip: Discuss these works thoroughly with your contractor and only do what needs to be done if you have a small budget:

  • The most expensive works are carpentry and masonry, and such extensive works can cost you around $22,000.
  • At the opposite pole are hacking and ceiling & partition. Even if you need extensive works, these will only cost around $2,000.

Eligibility Conditions For A Renovation Loan

The first step to getting any loan is checking your eligibility requirements. The reason is that too many rejected loan applications within a short interval will decrease your credit rating.

So, better safe than sorry!

Here’s what you’ll need for your renovation loan:

  • You have to bring proof of ownership. You can’t get a renovation loan for a flat you’re just renting, for instance. However, you can obtain a renovation loan if the proprietor is your relative and you have their written permission.
  • You have to be a Singaporean or Permanent resident. Unfortunately, you can’t qualify for a renovation loan if you’re a foreigner. In this case, you should consider a personal loan or an emergency loan depending on your work’s extent/ urgency.
  • Some banks impose age requirements as well. The usual range is 21-65 years old.

Some banks also have stricter conditions regarding your minimum yearly earnings and credit score. As such, they only grant renovation loans to people earning at least $20,000/ year and have good credit scores. Others will only approve your request if your income is at least $30,000/ year.

Factors To Consider When Getting A Renovation Loan

Let’s say you qualify for a renovation loan at multiple banks/ licensed moneylenders in Singapore. Yaaay! Now it’s time to get the best offer out of this bunch.

Interest, Instalment, And Tenure

The generic advice you find lying around on the Internet is to get a loan with the lowest interest rate you can find.

But you forget one major thing:

  • Your ability to repay the loan

That means taking into account tenure and instalments as well.

Here’s the best you can do:

Calculate your loan options through this lens: your ability to reimburse that loan comfortably.

This solution enables you to look at more than just the interest rate.

Sure, a low interest rate is great, but does it also bring with it a longer tenure?

Because if you’re extending your loan to five years instead of three, you’ll be paying interest for two extra years. And that means you’re ultimately getting a more expensive loan in the long term.

Now think of it like this:

If you get the 3-year loan, can you afford the corresponding instalments, or will you make too many sacrifices to pay for these?

Ultimately:

Get the loan with the lowest interest-instalment-tenure mix you can find. It’s important to afford the instalments comfortably, but also not to extend the tenure unnecessarily.

Application Process

Most banks and licensed moneylenders in Singapore have automated the loan application processes on their websites. That means you’ll send your request seamlessly, and you’ll get a quick reply too.

However, you may need a renovation loan for urgent works.

For example, you need urgent roof repairs, or you have faulty electrical wires. In this case, sign up with a financial institution that can approve and transfer your money within 24 hours.

Good Customer Support

It’s essential to pick a licensed moneylender or bank that has excellent customer support. So, read the online reviews and see what other customers have to say.

Customer support is essential because:

  • You want to understand all the terms of your contract
  • You need an agent who gets you the best-tailored loan for your needs, from interest to instalment and tenure
  • You want to ensure that, if worse comes to worst, you can re-negotiate your loan

Steps To Get A Renovation Loan In Singapore

There are six steps you have to follow for getting a renovation loan in Singapore:

1. Have A Specific Plan

When you apply for a loan, be as specific as you can about why you need the money—for instance, stating carpentry works as your goal sounds too generic.

Instead, try to break down this goal and the associated works like so:

Dismantling and extensive renovation of living room:

  • Feature walls
  • Cabinetry
  • Shelves

Pro tip: Include your check-up report and any repair recommendations you have from your contractor. These documents will improve your chances of securing the loan because the licensed moneylender/ bank will perceive you as a diligent customer.

2. Ask For A specific Amount

Most banks and licensed moneylenders in Singapore have vast experience with renovation loans. However, no two homes are identical in terms of renovation costs.

That means you have to do your homework.

Use an online calculator for a ballpark figure and double-check with your contractor. For example, extensive kitchen plumbing is estimated at $300 – $1,000 for at least three water fixtures, including:

  • Kitchen sink/taps
  • Water filtration system
  • Piping
  • Heater storage
  • Extension/ concealing works

But only a plumber can tell you if those works amount to $867.95 or $301. For an extensive project where you need many jobs in different areas of your home, every $10 counts to the end sum.

3. Check Your Credit Score

Your credit score bears some degree of importance when applying for a renovation loan. Some banks will put more emphasis on it, whereas some licensed moneylenders will care less about it.

But what is your credit score, and why is everyone looking at it?

Your credit score represents a rating of your past credit history, so it’s basically a grade you receive for how well you’re handling your finances.

As such, this credit score tells financial institutions one crucial thing:

The risk of defaulting on your loan.

The point is people with higher credit scores are perceived as better customers because they’ve made wise financial decisions in the past. As such, they receive more convenient loan offers, including lower interest rates.

However, some licensed moneylenders in Singapore have begun to question that statement.

True enough, people can make mistakes – even financial mistakes – but they can also come around. And so, if you’re showing good intentions and a secure income, some licensed moneylenders in Singapore will grant you the renovation loan you need.

How can you show those good intentions?

Well, one start is to be as specific as possible with the sums and works you need.

4. Review Various Options

If you want to obtain a fair renovation loan, you should do your research first, checking the rates, instalments, and tenure as we advised you before.

Remember to read customer reviews to ensure that your agent will always try to find the best solutions for your needs. And, of course, double-check MinLaw’s list of licensed moneylenders to make sure that you’re not reaching out to a loan shark.

Pro tip: Use our website to review and compare the best options.

5. Get Your Paperwork Ready

The documents you’ll need to have for your renovation loan include:

  • Proof of identity (ID card/ passport)
  • 6-month’ statement to your CPF
  • Last three months’ computerised payslips
  • Evidence of ownership/ relationship
  • Contractor’s quotation

6. Send Your Application

Send your application and wait for the bank or licensed moneylender to get in touch with you. Most will contact you within the hour. Even some banks in Singapore can send automatised instant approvals if your documents are in order.

Warning: Ensure that the licensed moneylender/ bank agent contacts you directly for a face-to-face meeting at their headquarters. This interview is mandatory according to the law in Singapore.

At this appointment, you’ll decide the terms of your contract and, of course, you’ll receive a written copy.

7. Start Repaying Your Instalments

Be as diligent as possible in repaying your renovation loan. As you’ve seen from our first example, a $20,000 renovation loan with a 5-year tenure amounts to around $400/ month in instalments. Considering the minimum salary in Singapore, this payment is doable – unless you have other debt.

But, if you can’t repay the loan, be upfront with your lender instead of simply defaulting on your payments.