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 $30,000, or those who do not want to take out an additional bank loan, may be tempted to instead take an in-house loan offered by the interior design firm they have engaged.
4 renovation companies with in-house loan
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.
In-house renovation loans from interior design firms aren’t common, here are four renovation companies that offer in-house renovation loans in Singapore:
Renovation Company | Location | In-House Renovation Loan |
Livspace | 7 Locations | Yes |
TCA Design & Build | 20 Depot Ln, #01-07 | Yes |
3D Innovations Design | 178 Toa Payoh Central, #01-208 | Yes |
Jaystone Renovation Contractor (Temporarily Closed) | 34 Boon Leat Terrace, #04-12B | Ye |
Be cautious and prudent with it comes to taking any loan. 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.
1. In-house loans are backed by 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.
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 rate 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.
Bank renovation loan vs Licensed moneylender
Here’s a quick comparison between a licensed moneylender loan and a bank renovation loan, using the respective providers’ online calculators.
Let’s assume you are taking a $20,000 renovation loan, and you plan to pay up over 2 years.
Based on this table, you will be paying much more in total total interest over the 2 years!
Licensed Moneylender Renovation Loan | Bank Renovation Loan |
Monthly: $1,311 | Monthly: $870 |
Total interest : $11,481 | Total interest : $882 |
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.
No matter where you are taking your renovation loan from – bank, licensed moneylender, or your renovation company – you should look out for the following when considering a renovation loan offer.
1. 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.
2. Loan tenure
Loan tenure basically refers to the time you need to pay back the loan. Banks typically give you 1 to 5 years for you to repay your renovation loan. This allows you to spread your debt out, resulting in lower monthly repayments that are easier to manage.
However, note that the longer you take to pay back, the more monthly 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.
Now, if you feel that the monthly payments for your renovation loan is too high, you should not take that renovation loan, as you run the risk of falling into a debt trap, and never-ending penalty charges.
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 financial institution or licensed moneylender that is providing the loan, 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.
This article was first published in Singsaver.
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- home tips
- loans
- renovation