Personal Loan Vs. Renovation Loan: How Do You Make Your Choice?


Now that you have the keys to your new home, the next thing that you are thinking about is probably renovation. You want your new home to be the dream home. Also, you don’t mind spending good money to build a comfortable living environment. But you do not have so much cash on hand to pay for the renovation works. So, you decide to take up a loan to renovate your new home. Then, here comes the dilemma. What kind of loan should you choose to get that dream renovation?

There are 2 kinds of loans that you can take to pay for your renovation: personal loan and renovation loan. To help you make a smarter decision on which loan to go for, we identify the best loan options available to you.

Interest rate
First, let’s compare the 2 from an interest rate perspective. Out of these 2 types of loans, which loan is the cheaper option?

A personal loan is an unsecured loan that banks offer to you based on your credit history and ability to return the loan. When you apply for a personal loan, the bank doesn’t question where you are spending your money on. You could be borrowing to buy your favourite Rolex watch, fund your wanderlust or even renovate your home.

As long as you are deemed to be able to return the loan based on your monthly income, the bank will approve the loan. As such, banks typically charge a high-interest rate to account for the greater risk that they are taking.

Since renovation loans are catered for specific types of expenditure, the bank has more visibility on how you are spending. This gives the banks much more confidence that you are spending the loan amount on a necessity. And if things really go wrong, the banks know that you still have a property which they can take as collateral. Banks are thus willing to offer a lower interest rate if you are taking a renovation loan compared to personal loan.

Therefore, while a renovation loan is also an unsecured loan, it charges a relatively lower interest rate compared to personal loan.

Verdict: Renovation loan

Loan quantum
The next question to ask is, “How much can I borrow from renovation and personal loans respectively?”. The average renovation cost for a 4-room flat is around $40,000 to $60,000, depending on your choice of furniture. You would typically need to borrow $40,000 to $50,000 for your renovation if you do not have much spare cash. This is especially so if you have just paid for a significant sum of your new home in cash.

In Singapore, renovation loans have a ceiling of $30,000. For example, OCBC allows you to borrow up to 6 times your monthly income or $30,000, whichever is lower. Some banks also have a minimum borrowing amount. In the case of OCBC, the minimum borrowing quantum is $5,000.

In terms of loan quantum, personal loans hold an edge. As long as your salary is deemed to be suitable for loans more than $30,000, the bank would be happy to lend to you.

Verdict: Personal loan has a slight edge

Loan tenure
So, how long can you take to repay your loan for personal and renovation loan?

Banks in Singapore allow you to take up to a maximum of 5 years to repay a renovation loan. On the other hand, personal loans have loan tenure up to 7 years. Thus, if you are looking to repay your loan through a longer time period, a personal loan might be a better option for you. However, don’t forget that the longer you drag your loan repayment, the more interest charges you will accumulate.

Verdict: Personal loan has a slight edge

Special situations
How about using a personal loan to supplement your renovation loan? Wait a minute. Instead of just comparing between renovation loan and personal loan, some of you might be thinking of an out-of-the-box solution. Why not use a personal loan to supplement a renovation loan? Since renovation loans have a maximum loan quantum of $30,000, why not top up the rest using a personal loan? Moreover, it is not uncommon for contractors to go over budget. If your renovation loan becomes insufficient, your personal loan can make up for it.

From time to time, banks will run promotions for their personal loans and offer a promotional interest rate or vouchers upon approval. Take these offers into consideration, and they lower your effective interest rate and could very well be more competitive than renovation loans.

This article first appeared on and is re-published on with permission. Photo credit: Met Interior