How much will the monthly payment be on a home renovation loan?
Many people who buy houses or apartments that are sold as empty units often don't come with included appliances and furniture from the developer, or they choose not to accept these extras in order to decorate and choose furniture themselves later. This means that in addition to the house price, they also need a significant amount of cash for home decoration. Some may even want to renovate their homes after living in them for a while. But what if they don't have enough cash on hand?
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Types of Home Renovation Loans
There are five types of loans that can be approved for home renovations:
1. Personal loan combined with a home loan: If the house is still mortgaged to a bank, you can apply for an additional loan with the same bank where you are a home loan customer. This can be done simultaneously with the home loan approval or as a separate loan.
2. Secured personal loan: This refers to a loan secured by real estate, such as a house, condo, or land. The property must be debt-free.
3. Guarantor-secured personal loan: This requires a guarantor to act as collateral for the loan.
4. Secured personal loan using a savings/fixed deposit account as collateral. This involves using our own account or an account of someone who agrees to let us use their account as collateral. The condition is that we cannot withdraw any money from the account until the debt is fully repaid.
5. Unsecured Personal Loan: This is a loan that does not require any collateral, but the bank will determine the maximum approved loan amount based on the borrower's average monthly income, usually 5 times their monthly income.
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Which Loan Should I Choose?
The next question is, which type of loan should I choose, how much do the interest rates differ, and what will the monthly payment be? We have calculated the monthly payments for different types of home renovation loans for comparison.
Assuming a loan amount of 200,000 baht and a repayment period of 5 years for all types, the interest rates presented are averages calculated from a random selection of 3 banks to find the average for each loan type (calculated on April 29, 2017).
- Personal loan combined with a home loan: Interest rate 6.83%, repayment period 5 years, monthly payment 3,950 baht. This loan is only available from the bank where the house is mortgaged.
- Personal loan secured by collateral - Personal loan with a guarantor: Interest rate 7.74%, repayment period 5 years, monthly payment 4,035 baht. Collateral must be debt-free.
- Personal loan with a guarantor: Interest rate 8.88%, repayment period 5 years, monthly payment 4,145 baht. Please check the guarantor eligibility requirements of each bank.
- Personal loan with a deposit as collateral: Interest rate 2.83%, repayment period 5 years, monthly payment 3,580 baht. The deposit used as collateral must not be withdrawn.
- Unsecured personal loan: Interest rate 21.83%, repayment period 5 years, monthly payment 5,530 baht. Minimum monthly income as determined by the bank is required.
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It can be seen that the loan with the lowest interest rate and lowest monthly payment is the one using a deposit account as collateral. However, this has the disadvantage of requiring the money to be kept in the bank until the debt is fully repaid. Next is using a personal loan in conjunction with a home loan from the same bank, or a personal loan with collateral or a guarantor. In these three loan types, you can compare each bank to find the best loan package.
Finally, an unsecured loan may not be suitable for home renovations unless it is an urgent necessity. Because interest rates are very high.
Furthermore, for secured loans, whether using collateral, a personal guarantee, or a deposit account, many banks offer reduced interest rates if you have a salary account linked to the borrowing bank or if your company has a welfare memorandum of understanding (MOU) with the bank. Banks offering such conditions include Kasikornbank, Krung Thai Bank, and Siam Commercial Bank.
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Therefore, if you are a private sector employee, you should check if your organization has any employee loan benefits with any banks and contact the bank where you have your salary account; you may receive a better interest rate.
Finally, if home renovations involve purchasing electrical appliances or furniture, before directly applying for a bank loan, remember to look for 0% installment payment promotions. Many stores offer this in this fiercely competitive market, benefiting consumers by allowing them to pay in installments without worrying about interest.
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Thank you for the helpful information from DD-Property.
