Whether it’s fixing damage caused by heavy rain, flooding, fire or you just got inspired to redecorate; home renovation can be costly.

On average, to replace a damaged roof can cost around P40,000 to P50,000 for a small home around 30sqm. Meanwhile, construction costs can go up to more than one hundred thousand pesos.

The cost depends on several factors, including the size of the home, store, and supplier.

If you don’t want to use up all your savings, your best alternative would be to apply for a loan to finance your projects. With a personal loan or a home loan as you best options, how would you know which one would work best for you?

Questions to Consider When Choosing a Loan

Making a decision can be difficult when you have different options available. You can check out these options to jumpstart your decision-making process, so your loan option best fits your home renovation needs.

  • Do I qualify for a loan?

    Before you get loan approval, banks consider some factors which include your financial history and your ability to pay for the loan.

    As a potential borrower, you can increase your chances of approval by doing a few things. For instance, you can start taking steps to improve your credit score by paying down your credit debt.
     
  • Can I afford to take out a loan?

    Taking out a loan is a substantial financial decision. It’s essential to check in your current financial health before taking out any loan. This allows you to plan for your finances and see how much money you may need for a loan.

    Make sure you have a good idea of how much cash you actually need. Check your overall income and expenses (including any existing debt) as this will help you know how much money you can put aside if you’re going to take out a loan.
     
  • How much do you need to borrow?

    Most home improvement expenses cost P50,000 up to P200,000 on average for works such as roof repair or plumbing repairs. The cost varies depending on the size, materials and other construction costs.

    There’s a difference between how much you can loan and how much you feel comfortable borrowing. Getting an idea of how much cash you need can be helpful to find the type of loan that fits your goals.

    You can start by estimating the cost of the home repair, such as the materials and the repair cost. List the potential costs of the repair so you can come up with an ideal loan amount.


For a personal loan, the loan amount ranges from P20,000 up to P2,000,000, while a home loan has a minimum loan amount of P800,000.

If you’re only borrowing P40,000, it makes sense to get a personal loan instead of a home loan as it offers a lower minimum loan amount.

How do Personal Loans differ from Home Loan? 

Personal loans are usually unsecured loans, which can be helpful when you don’t want to put your home up as collateral, which is necessary for a home loan. This means that if you fail to repay your loan, the bank will foreclose your home, unlike in personal loans.

You can use a personal loan for any financial need, whether it’s for emergency medical bills, debt consolidation, or to fund a travel goal. A home loan, on the other hand, is money that is borrowed from the bank to purchase a house.

A personal loan offers flexible loan repayment, which can be paid up to 3 years. With a home loan, you can choose between a conventional home loan, which provides a fixed payment over a particular duration, or a flexible loan where you control the interest rate depending on how much you will deposit.

Interest rates on personal loans can range from as low as 1.2% to as high as 42%. A personal loan with a lower interest rate could be very manageable for a home improvement project, since having a high-interest rate can be costly.

Home loans’ interest rates offer lower rates compared to personal loans, which range from 4.75% up to 6%. However, the long-term repayments for up to 25 years can be a drawback for an inexpensive and minor home repair.
At a glance:

Type of Loan

Collateral

Interest Rate

Minimum Loan Amount

Maximum Loan Amount

Loan term

Repayment Terms

Personal Loan

No Collateral Needed

1.2% - 42%

P20,000

P2,000,000

Typically 3 months up to 3 years

Monthly repayments

Home Loan

Yes

4.75% - 6%

P300,000

up to 80% of the margin of finance

Typically 10 to 25 years

Monthly repayments

If you need to borrow money for home renovation, a personal loan or a home loan can either prove to be the right choice. Let’s look at the advantages and disadvantages of each.

Advantages of Personal Loan for Home Renovation

Personal loans are a quick source of cash, which can be useful in situations such as home improvements and need some extra funds. Here are some of its benefits.

  • You don’t need collateral. This is an excellent choice for people who don’t have equity in their homes or people who don’t want to put their house as collateral.
  • You can borrow small loan amounts. You can loan a relatively small loan amount for as low as P20,000, which is great for minor repairs or upgrades.
  • The loan application is more accessible. A personal loan does not require equity appraisal or other services before you get loan approval.

While it has its benefits, the personal loan also comes with a few drawbacks. It also offers higher rates than a home loan. The short repayment tenure can also be a disadvantage. With shorter terms, budgeting can be tricky, especially if the home repair is expensive.

Advantages of Home Loan for Home Renovation

Through a home loan, you can borrow a loan amount as high as the market value of your existing home and use the funds for home improvement. It’s also a secured

  • Rates are lower. Unlike a personal loan, home loan’s interest rates are much lower. This is because a home loan is a secured type of loan wherein you can put your house as collateral.
  • You can borrow higher loan amounts. Since you can borrow up to the market value of your home, you can use this if you want to make significant renovation.
  • You have plenty of time to pay. Home loan offers long-term repayments for up to 25 years. This is a massive advantage if the home renovation project is going to be significant and costly.

Home loan has its disadvantages as well. If you fail to make monthly payments, the bank will foreclose your home. Another problem is the long repayment term, especially if you’re only doing small home repairs.

Which is better for home renovation - a personal loan or home loan?

Both a personal loan and a home loan offer specific benefits. A home loan is an excellent financial move for costly and long-term home renovation or buying a house.

The lower interest rate on a home loan might seem more affordable than a personal loan. However, the monthly payments and interest rates are lower because you’re spreading them over a longer period. The longer you pay on loan, the more interest you pay altogether.

A home loan also allows you to borrow large amounts compared to a personal loan. However, when you can no longer pay and default on your loan, the lender could take away your home.

Home loans may seem ideal, especially for significant home improvements, but it comes with a lot of risks since you’re borrowing a considerable amount of money.

With a personal loan, you don’t have to use your home as collateral to get loan approval. That means, if an unforeseen event like a job loss makes it impossible for you to repay the loan, you don’t have to worry about your home being taken away as it’s not tied to the loan.

A personal loan also offers fast loan approval; this can be beneficial should you need to make immediate home repairs.

The shorter payment terms could also help strengthen your credit profile when you make regular monthly payments. This can help you build your credit should you want to increase your chances of taking out bigger loans such as a home loan or car loan.

Getting the Best Personal Loan for Home Improvement

If you decide that a personal loan is for you, here are some tips you can check out to get the best deal possible.

  • Compare different rates and offers. Before taking out a personal loan, compare the rates and offers from multiple lenders.

    You’ll be able to check out the estimated rates and fees offered by each loan. You can also browse for the type of loans that serve your needs better.

    To save time, consider using our ‘beary’ comparison tool to help you narrow down the best personal loan that fits your budget and needs.
     
  • Make sure you can afford it. Remember, when you take out a personal loan, you’re committing to pay it back on time. If you can’t pay on time, you’ll risk paying more than you already owe. This could put you into a bigger financial mess.

    So before you sign, check your finances and make sure you can afford to make the monthly payments.
     
  • Read the fine print. It pays to read the fine print. Make sure you are aware of all the terms and conditions. Some lenders may charge prepayment penalties when you pay the loan earlier than the date, or it may come with other fees. Remember to check the total cost of the loan and the fees and charges that go with it.

Bottom line

A home loan is ideal for big financial moves like buying a house or house construction, but they’re not necessarily the best for funding home renovation. It offers lower interest rates and long repayment periods of up to 25 to 30 years.

Home loan and personal loan lets you borrow money. However, a personal loan offers a collateral-free way to affordably finance home improvement in reasonable interest rates and shorter repayment terms.

The accessibility of having no collateral needed to get a loan for people who can’t obtain financing through other means is a really great option. With a personal loan, you can also budget your monthly payment with its fixed term.

Before you get a personal loan, make sure you do your homework and research everything you need to know. Also, keep in mind the quick tips mentioned above to get the best loan that fits your needs.

personal loan

 

GoBear team

GoBear team

GoBear Team - Our content creators collaborate to come up with finance articles that will make financial literacy a joy to learn and financial security an attainable goal.

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