Personal Loan vs. Renovation Loan Comparison Guide: Which Is Better for Your Home Makeover?

Planning a home makeover? I know I am. My place is ready at the tail end of next year and I’m already speaking to different interior designers. It’s an exciting period. You just sort of end up dreaming about all the different combinations: Scandinavian, Bohemian, Wabi-sabi, Mid-century modern etc. The possibilities are endless.

And then: boom. The quotation from your ID arrives. Not to be a downer here, but the average renovation cost for a new 4-room flat is about S$52,500 to about S$66,000. 

I know—I’m crying too.

So unless you’re already pretty loaded, there’s a high chance you’d be vying for a loan of some kind to finance the renovation. One big question remains: which loan? Well, there are two main types you can consider in this situation: personal loans and renovation loans—each with its own benefits and drawbacks.

Understanding these differences will help you not want to pull your hair out and make the best financial decision for that sweet sweet wabi-sabi home reno (if you can tell, I’m really into wabi-sabi right now). That’s why this article will cover the pros and cons of each type of loan in relation to renovation and highlight which one suits which needs the best—along with some other small pointers on things to look out for as you start your reno journey.

 

Personal Loan vs. Renovation Loan: Which is better?

1. First, a side-by-side comparison.
2. Let’s talk about personal loans.
   • But here’s the catch about personal loans.
3. So, what’s different about renovation loans?
   • Now, the not-so-great things about a renovation loan.
4. Other factors to consider when picking the loan
   • Check your credit score
   • Compare loan promotions
5. In conclusion
   • Need the TL;DR version?

First, a side-by-side comparison.

via GIPHY

When we talk about loans, we talk about these big points. That’s just the way it is. Interest rates, maximum loan amount, repayment period, eligibility, processing time—factors like those are bound to come up.

	Personal loan	Renovation loan
Interest rates	Higher (~3.5% to 8% p.a.)	Lower (~3% to 5% p.a.)
Maximum loan amount	Up to 4x monthly income (or 8x if earning >$120K/year)	Up to 6x monthly income or $30,000, whichever is lower
Repayment period	1-5 years	1-5 years
Processing time	Faster, minimal paperwork, approval within days	Slower, requires contractor quotes and bank approval
Loan eligibility	Usually 21 to 65 years of age, open to most individuals with a steady income	Must be a homeowner, and renovations must be carried out by an approved contractor

As you can tell, there are a fair few differences between these 2 types of loans. Let’s dig a little deeper into each one. 

Let’s talk about personal loans.

via GIPHY

These are unsecured loans that can be used for almost anything—literally. This naturally includes home renovations. Banks and financial institutions in Singapore typically offer these loans with fixed interest rates and repayment tenures ranging from 1 to 5 years. So let’s take a look at some of the pluses and minuses. 

✅ The Pros	❌ The Cons
Flexible usage of loan funds	Much higher interest rates
Quicker loan approval process	Higher risk of over borrowing
Lesser restrictions

With personal loans, flexibility is the name of the game. This means the money is yours to use however you see fit—not just for renovations but for furniture, appliances, or even some post-reno touch ups.

You’ll also be allowed to take a larger loan probably. Most banks and financial institutions will approve only up to 4 times your monthly income (8 if you’re making more than $120,000 a year—so the amount might be higher compared to the relatively low $30,000 cap with renovation loans. Then again, this really depends on your monthly income so choose accordingly. 

Personal loans are also comparatively quicker and easier to get approved. You usually don’t have to deal with too much paperwork, and in no time, the cash could be in your hands. 

But here’s the catch about personal loans. 

They can be a little pricey in the long term. Because they’re unsecured (no collateral), they typically have higher interest rates—think around 3.5% to 8% per year. Also, because the funds can literally be used for anything, there’s potentially a higher chance of you spending that money on something other than your renovation. 

 

So, what’s different about renovation loans? 

via GIPHY

Renovation loans tend to have lower interest rates (around 3% to 5% per year), which means you’re paying less in the long run. 

✅ The Pros	❌ The Cons
Lower interest rates	Limited/specific use of loan funds
Direct and convenient cash orders to contractors	Collateral required
Could be a higher maximum loan amount  depending on monthly income	Could be a lower maximum loan amount depending on monthly income
Structured repayment terms (based on renovation timeline)	Longer processing time

While lower interest rates are a huge consideration, honestly, I think that the disbursement method is where the renovation loan has an advantage. They’re primarily done in cashier’s orders, which means it’s made out directly and very specifically to the contractors that are performing the renovation works for you. This reduces the chance of fund misuse and ensures your renovation doesn’t suffer setbacks from any delay of payments.

Also, the repayment is structured according to the timeline that your renovation plan states, which means there’s less risk of overwhelming your finances with large monthly payments all at once, as you can spread out the cost over a more manageable period.

Now, the not-so-great things about a renovation loan. 

via GIPHY

The biggest handicap for a renovation loan is the inflexible use of the funds. The money procured for these loans are strictly for structural works like flooring, electrical works, built-in or custom cabinetry. This does not extend to non-structural or decorative elements. So if you want to grab a few new couches or appliances, a renovation loan isn’t going to cover those purchases.

These loans are also considered “secure” loans, so you’ll probably need to put up your home as collateral. If something goes south (please, let’s hope not!), you could run into problems. Personal loans usually don’t require this.

The amount you can borrow can be a bit tricky. For renovation loans, there’s a cap of 6 times your monthly income or $30,000, whichever is lower. This could be a plus or a minus, depending on how much you earn each month.

For example, if you make $3,000 a month, you can borrow up to $18,000—which is more than the $12,000 you’d be eligible for with a personal loan. But if you make over $7,500 a month, you could end up with a higher loan amount using a personal loan since it isn’t capped at $30,000.

In other words, whether this is a pro or con really depends on your income—so it’s something to think about based on your own financial situation.

Finally, you’ll also need an approved contractor as well as renovation quotations at hand as you apply because these will come into consideration when the bank or financial institution is deliberating whether to approve your renovation loan request. This’ll probably add to the time taken to actually get your funds. 

 

Other factors to consider when picking the loan

Check your credit score

Both loans will take your credit score into account. If your score’s looking good, you’re in a better position to get either. But if your credit isn’t the best, a renovation loan might be easier to secure since it’s backed by collateral. 

Compare loan promotions

Banks usually run promos for both personal and renovation loans—think lower interest rates, processing fee waivers, cashback offers, and even welcome gifts. Always check for these and commit to the one which gets you the best offer.

In fact, you don’t have to look far—just head over to our website to find the best promotions on both personal and renovation loans!

 

In conclusion, it’s all about what your situation is.

In the end, choosing between a personal loan and a renovation loan really depends on your financial situation and the scope of your renovation. 

Here are a few common scenarios and my take on which loan might be the better fit—see if any of these sound like you! 

Remember: DO YOUR OWN RESEARCH (Sorry for cap-sing but I need to stress this) before committing. 

Situation #1	“I just bought a resale flat, and the renovation costs are massive.” . Go for a personal loan. Resale flats often require more extensive renovations—rewiring, re-tiling, hacking down walls—all of which can cost well over $30,000. . Since renovation loans cap at $30,000, a personal loan might give you the extra funding you need.
Situation #2	“I’m only doing basic reno, like flooring and built-in carpentry.” . A renovation loan is your best bet. If your renovation is mostly structural work, a renovation loan’s lower interest rates make it the smarter and more cost-effective choice. . Plus, since the funds go directly to the contractor, you won’t be tempted to overspend.
Situation #3	“I don’t want to borrow too much.” . A renovation loan keeps you disciplined.With a personal loan, it’s easy to borrow more than you actually need. . But since renovation loans are capped at what your contractor quotes (or a max of $30,000), you won’t be tempted to take on excessive debt.
Situation #4	“I want to finance both renovation and furniture purchases together.” . Personal loan wins here.Renovation loans can’t be used for furniture, appliances, or decor. . So if you’re looking to finance your entire home setup—including a fancy couch, a new fridge, and maybe even a Dyson—a personal loan’s flexibility will suit you better.

Need the TL;DR version? 

Go for a personal loan if:

• You need flexibility (money can be used for furniture, appliances, etc.)
• You want quick approval with minimal paperwork
• You’re comfortable with higher interest rates

Speaking of which, the best personal loans are the ones you get with our partners. So check them out before you make a decision.

Go for a renovation loan if:

• You have a specific renovation plan with a contractor ready.
• You’re comfortable using the loan only for structural elements of your renovations.
• You want lower interest rates and structured repayments.

Whatever you choose, just be sure to shop around for the best rates and terms. Don’t rush into it—take the time to understand your options and choose the loan that works best for your dream home makeover. 

Happy renovating, and here’s to us making our homes just the way we’ve always wanted (with less tears, more savings, and more wabi sabi)!

 

Know someone who’s planning to renovate soon? Share this article with them.

---

About the author

Having been writing for a little over 10 years, KC has flexed his pen in a variety of industries—think automotive, fitness, entertainment, and finance. He’s ultimately on a mission to prove that any topic, no matter how serious, can be made fun.

Off-duty? It’s all about food, drinks, parties, and gaming marathons.