We know you want to spend more time behind sipping lattes at your new kitchen counter, relaxing in your designer bathtub, or taking in the sun on your patio, ideally with a beer or cocktail in hand. A low-rate renovation loan can help get you there.
A fraction of a percentage point or an extra year of repayments may not seem like much now, but over time it adds up. So take stock and you could save dollars in the long run while still having all the fun.
Renovation loans are usually less costly than credit cards and home loan top ups, by virtue of their lower rate, or the time they take to pay off. And if you do your research, you can find one that offers low interest, no early repayment penalties and minimal fees. When that’s the case, you can save from the start, and pay your loan back over a time period that suits you.
This type of loan is also far kinder to your wallet than many other forms of credit, leaving you more room (and money) to play.
Hello? Win win.
But you will need to know what you’re looking for. Low interest is just the start.
This one is simple. No algebra required.
The longer loan term will mean lower payments and more interest paid out over time. The shorter loan term will mean higher payments but you’ll pay less overall as you’ll pay less interest.
This is really important when deciding if a home loan top up, or a separate renovation loan is right for you. Be sure to compare the total cost of your loan over time. While interest rates and monthly repayments can be temptingly low, a long loan term may well mean your new kitchen costs a lot more than you thought it would overall.
Ever been lured in by a low interest rate on the internet only to find it mysteriously change to a higher one when you apply? Turns out interest rates are not all created equal.
Low interest rates can be fluid and dependent upon your personal spending history. If you’ve got a good credit rating then you should be rewarded for your diligence, so ask around and compare rates on offer. If it’s not so great, then you can start to make it great with a higher interest rate paid off earlier.
Speaking of credit ratings, before you ask for renovation loan quotes, check in with the lender that the quote process is credit score friendly. This means the lender does what’s known as a “soft check” on your credit file so there’s no unnecessary bruising to impact future loan applications.
Your interest rate for an unsecured loan will then be dependent on your assets, your debts and your life expenses. If you keep your credit card limits low and your debts even lower, then your personal loan interest rate will follow.
The benefits are many and may outweigh the higher rate as you won’t be risking your home or assets if you can’t pay your loan due to unforeseen circumstances.
Secure and stable is underrated, literally
Lenders will love you if you reduce their risk, so if you have an existing asset and are prepared to secure a personal loan with it then, voila, instant lower interest. And the home you are looking at renovating could form part of that collateral.
Cars, boats, art, jewellery and even term deposits are also considered security. But be warned, you’ll be granting the lender rights over that asset in order to obtain that lower rate. What does that mean? Well, if you are unable to make your repayments then the lender can seize your asset and then sell your asset to cover the cost of your outstanding debt. So you’ll want to have faith in your ability to make payments.
Seriously, though, secure loans give lenders more confidence, and less risk and gives you lower interest.
The good news for you is that with your assets effectively acting as guarantors, you can then borrow larger amounts and have longer repayment terms. This means less economic stress in favour of living your best life.
There will be some unique terms, though, and it could take a little longer to process your application than an unsecured loan. It’s all about the Loan to Value Ratio (LVR) to ensure your asset has enough equity to cover your loan should you find yourself in the unlikely position of not being able to make payments.
Yet unlike an extension of your mortgage, you won’t have to submit renovation plans as part of the application process, and what you choose to do to improve your home is entirely up to you. From landscaping to loft extensions, it’s your big idea - a renovation loan can make it happen.
Ducks in an eligible row
Before you can get that low interest cash to fulfill your life goals, you’ll need to prove you’re eligible.
Age is just a number, but you’ll need that number to be 18 or over and for some loans you’ll need it to be 21. You’ll also need proof. So polish up that passport and driver's license as it will go on display. If you’re not an Australian citizen then you’ll also need resident certification to prove you are a permanent resident.
Make sure you have pay slips or similar to prove you earn at least $25,000 per year, dependent on how much you are wanting to loan.
Those with their own business and a direct line to their accountant will need to provide additional tax information, revenue and earnings to get the lower interest rates.
If you’re employed then you’ll need to make sure you’ve been in employed for longer than the probationary period and that your employers are confident to give you good references.
Casually employed? Temporary resident? There may still be loans available for you, but the interest rates won’t be as low. Again, a good way to improve that credit rating.
If you have debts you’re paying off, or existing loans, and are applying for a non-secured loan then double check the eligibility criteria for any loan you apply for. Then, only submit an application when you know it won’t negatively impact your all-important credit score.
The better your credit score the more choices you will have available to you, so guard it with the care of a new-born baby.
Hit me up - fees and charges.
Let’s talk about those fees and charges. Some lenders may charge an application fee, monthly account keeping fees, administration fees, refinancing fees, late repayment fees, early repayment fees. The list goes on.
You can always check the comparison rate for the real cost of a loan. You want that figure and the interest rate figure to be as close as possible as it means you’re spending less.
The comparison rate takes in the amount of a loan, the term of a loan, the repayment frequency, fees, charges, interest rate. It’s a better indicator of what you’ll be up for when getting yourself a fixed term renovation loan.
But there’s more to a loan than interest and comparison rates. Everyone’s life needs are different, so you may want to prioritise the ability to pay out a loan early with no fees or you may prefer to have a longer repayment term.
Whatever works for you.
Shop around. Shop around.
More lending services means more loans on offer means more competition means competitive rates. Though do your research and always check ratings, reviews, fees, charges and penalties.
It may help to reach out to those you already bank with, that way they’ll have your transaction history at hand and the approval process will be swift and theoretically the interest will be lower. But, again, check fees and charges. Having a low interest loan is great, but not if there’s a ton of fees and penalties that counter that low interest.
That’s the long and the short of it and everything you need to know to help decide if a low interest renovation loan is for you.
Just remember, choose between secure (less interest) or unsecured loans (a bit more interest), shop around, read the fees and charges fine print and choose a loan repayment length that will work for your lifestyle.