From a construction loan for home renovation to a repair bill for a leaky roof, it’s what you need it to be.
A home renovation loan is a type of personal loan, giving you the money you need to make the changes you want to your home. Whether you’re planning your dream upgrade and looking at a construction loan for home renovation, need to build an extension for a growing family or just have a few repairs to make, the choice is yours.
A renovation loan is separate to your mortgage and is not about refinancing or tapping into your equity. It’s stand-alone finance to help you on your journey to home happiness.
But just like any other personal loan, renovation loans come in a few different shapes and sizes. Here are the two main ways to tell them apart.
Secured or unsecured?
If you’re willing to put up an asset as security against the loan, you can often access a better rate with a secured loan. Just remember, if you can’t repay the debt your lender has the right to repossess the asset.
Fixed or variable?
For complete control over your money, you can choose to lock in your interest rate by fixing your loan. Budgeting is a breeze because you can work out the total cost of your loan, down to the cent. Rates will usually be a bit higher than with a variable, but you’ll avoid the ups and downs of the market.
If you’re willing to put up an asset as security against the loan, you can often access a better rate with a secured loan. Just remember, if you can’t repay the debt your lender has the right to repossess the asset.
How much can I borrow?
You can borrow between $2,000 and $50,000 or more across a range of loan terms, from 1 to 7 years. The loan is paid back in regular instalments (weekly, fortnightly or monthly) with interest, which may be fixed or variable across the life of the loan.
How do I compare renovation loan rates?
Say hello to your construction loan for home renovation goodness. Or goodbye broken glass windows from that backyard cricket game that ended with a bang. Our Renovation Loan Comparison calculator allows you to compare a wide range of renovation loans from $2,000 to $50,000, against other lenders, so you can find a winning deal.
How do renovation loans work?
Home loan and renovation loan: why the difference matters.
If you’re interested in a renovation loan, chances are you already have a home loan. So can’t you just use that for renovating? You can, but a home loan and renovation loan aren’t quite the same. Let’s look at how they work so, when comparing home loan and renovation loan options, you understand the choices to make.
A home loan is, quite obviously, a loan to buy a home. In return for the money, you give your lender security over the property you are using the loan to buy. Home loans will typically be on a 25 to a 30-year term, with regular fortnightly or monthly repayments.
If you have enough equity built up in your home, you can refinance your home loan – essentially borrowing more money against the increased value of your home. This can include borrowing money to fund a renovation. Doing this will increase the amount of your total loan that needs to be repaid. This gives you longer to repay the additional finance as it will be spread across the life of the loan, but it will likely cost you more in loan repayments.
What to look for in a renovation loan?
A renovation loan is a great choice if you don’t have enough equity in your property to borrow or have the ability to repay your loan quickly. The amount you can borrow is based on the estimated post-renovation value of your home. So if you’re wondering what renovations are eligible, you simply need to consider: will it improve your home value? Compared to extending a home loan, a renovation loan will likely save you money, because it can be paid off completely within a shorter amount of time.
Renovation loans, just like any other personal loan, have the same building blocks. Understanding those pieces will help you choose the right loan for you.
When you borrow money from a lender, you agree to pay it back with interest. The percentage of interest that you’ll pay on top of the amount you borrow is called the Annual Percentage Rate (APR) or Advertised Rate. It’s usually an annual rate. To work out your rate, lenders will factor in things like your credit history, your repayment schedule, the risk of lending to you (both personally and looking at the market) and their underlying costs.
The lowest rate lenders have available is the headline advertised rate. But it’s usually only available to a small proportion of borrowers. It may come with set conditions to qualify (e.g. a high credit rating) so you might not be offered this rate.
What you’ll likely need is a personalised rate. Talk to a number of providers and see what they’re willing to offer you. Just check that their quote process is ‘credit score friendly’. You want to make sure they only conduct a soft check on your credit file, so it won’t impact your credit score.
And remember, it’s important to consider the total cost of the loan including interest, fees and other costs to properly assess the value of any interest rate on offer. Because the best loan for you might not come with lowest interest rate.
As well as interest, a renovation loan will usually come with fees and other charges. They can quickly add up, and suddenly the great rate you get isn’t worth it. A comparison rate factors in the interest rate and any fees, expressed as an annual percentage. The comparison rate is usually higher than the interest rate charged on the loan and gives you a better idea of how much the loan will cost you.
For personal loans, there is a standardised measure for how comparison rates are to be calculated and displayed. For variable and fixed rate personal loans, the comparison rate is based on a $30,000 unsecured loan over 5 years.
But don’t get caught out – not all costs are included. You should remember you still need to factor in:
Late payment fees
Break costs or early termination fees
Deferred establishment fees
Broker fees (when taking out a loan through a broker, the broker’s service fees aren’t included in the comparison rate, which can be significant).
When it comes time to pay back your loan, you’ll be making regularly scheduled repayments – either weekly, fortnightly or monthly. When you factor these repayments into your budget, check that your loan repayment calculations have been quoted inclusive of any ongoing fees.
Your lenders might also give you the option of making a lump sum repayment at the end of the loan term, called a balloon payment. It’s a handy way to manage your cashflow because it reduces your regular repayments. But you’ll be paying interest on a higher loan balance as you go. And the lump sum is still due at the end of the loan, so you’ll need to remember to find the money along the way.
When you apply for a loan, you’ll face a few one-time charges to establish the loan. Known as establishment or application fees, they can include:
A flat fee (e.g. $499) that applies regardless of the value of the loan
A tiered fee (e.g. $250, $500, $750) based on the value of the loan
A percentage fee (e.g. 3%) based on the total amount borrowed and the credit or risk profile of the customer
A hybrid fee (e.g. $200 + 2% of the loan amount)
It’s up to your lender if they charge any or all of these
But even though they’re called ‘up front’ fees, that’s only when you’re charged them, not when you pay them. They’re usually capitalised to the loan, meaning they’re added to your loan, increasing your total loan amount. So you’ll be paying interest on those fees (as part of your total loan) for the life of your loan. If it’s a small upfront fee, the difference might be only a few dollars on each repayment. But if they’re significant, they can be costly.
Monthly or ongoing fees
Ongoing, account keeping or loan management fees, are typically paid monthly across the life of a loan. They just go straight to the lender and don’t help you pay down your loan at all, Typically, the lower the fees, the better. But it’s still important to look at the total amount you repay when you factor in all interest payable and costs.
Brokers can be helpful, but you’ll still need to pay them for their service, whether or not you realise it. For personal loans, the brokerage fee is often capitalised to the loan amount and is additional to the lenders own upfront fee. Brokers can also have commission arrangements with lenders built into your interest rate or offered as a return based on the final rate you accept. It’s another cost you should remember.
Penalty fees are avoidable, but they’re still a reality. The most common penalty fee is the ‘default’ or missed payment fee. If you make a payment late, or there are insufficient funds in your nominated account on the day a payment is due, you’ll likely be hit with a fee.
Late fees vary from $10 to as much as $35. Your lender may waive the fee if your account is brought up to date within 3 days of a missed payment, but you shouldn’t count on it. Be sure to keep an eye on your spending and make sure you have enough in your account to pay the loan. You might even like to set up a separate account dedicated to paying your loan.
Early repayment fees
Paying back your loan early is a great way to save money, just make sure you don’t get charged a hefty early repayment fee that undoes all your good work.
Exit fees or early repayment fees are more common with secured low-rate loans. There are different types:
A fixed fee where the loan is repaid in full any time prior to the end of the loan term (e.g. $500)
A fixed fee where the loan is repaid in full prior to a minimum period (e.g. $250 if full repayment is made less than 2 years into a 5-year loan)
A variable fee based on the amount you would have paid in interest and fees had the loan run to full term
How much money do you need for your renovation? Yep, that’s your loan amount (plus those upfront fees). This is the principal part of your loan that you’ll be repaying. Interest is charged on top of this, based on the outstanding balance of your loan.
In Australia, renovation loans usually range from $2,000 to $50,000, but some lenders will go higher.
A renovation loan gives you a dedicated window to pay back what you borrowed. In Australia, lenders offer loan terms between 1 and 7 years, with 3, 5 and 7 year terms being the most common.
Your monthly repayments will be lower if you take longer to pay. Just remember, to do your sums because a longer-term loan might have a higher interest rate that will cost you more overall.
Finding a lender that cares is the glue that sticks it all together. Look for a lender who makes it quick and easy to apply, get approved and manage your loan. They should care about your experience. If you know they care, you can more easily trust when you’re getting a better deal.
What can I use my renovation loan for?
For a kitchen renovation fit for a master chef or to simply to fit more friends at the table – it’s your choice.
Looking to add value to your property, expand your living space, improve your home’s energy efficiency, or simply to make it a more comfortable place to live? You can do it all and more with a renovation loan. That dream kitchen renovation? Done. That extra room downstairs? Move right in. If you can dream it, you can build it. And a home renovation loan can help you pay for it.
For home, sweet home
Turn those home dreams into home pride. A renovation loan can be used for:
Kitchen renovations – A renovation loan can be used for any kind of kitchen renovation or remodel, including cosmetic renovations such as installing new appliances and furniture. Add more cabinets, remodel to suit your lifestyle or instal new splashbacks that pop, it’s for everything including the kitchen sink
Bathroom renovations – A renovation loan can take your bathroom from oh dear to oh my. Update an old bathroom from top to bottom – upgrade taps and plumbing, install a new shower or bath and replace those outdated tiles with your designer choice. You can also add a second toilet or bathroom
Bedroom renovations – A renovation loan is perfect when a bedroom needs a quick lift. Bedroom renovations can include new paint and cabinetry, new beds, curtains as well as updated flooring such as carpet, floorboards or tiling
Living area renovations – A renovation loan can help you gain that much-needed space, extending your living area for more comfortable family gatherings
Backyard renovations – Renovation loans aren’t just for the inside. You can also use them to pay for outdoor improvements that make life worth living, like a new garden, those long overdue pavers, a retaining wall, a deck or a pool
For adding value
It’s not all about what you get now, a renovation loan can also help you plan for the future. Renovation loans can be used to fund any value-adding renovations. These types of renovations include adding an addition to your house which can boost your property’s overall value and comfort.
For going green
A renovation loan can be used to not just improve your life but improve the planet. Cover the costs of green or energy-efficient additions to improve your home’s sustainability, such as solar panels and insulation. And you might just end up helping your hip pocket.
For feeling secure
Take care of everything that’s precious to you and use a renovation loan to make your home more secure. You can use if for security screens, a garage or secured parking.
What types of renovation loans are there?
Looking for a home loan with money for renovation? You might want to think of a personal loan instead.
Often your dream home doesn’t start out that way. If you’ve got a project waiting, or you’re considering buying a renovator’s delight, you might be looking for a home loan with money for renovation. Sometimes that’s possible, but it depends on your circumstances. And you might find that a stand-alone renovation loan is a better choice. Let’s look at what’s available.
Isn’t my mortgage for that?
If you’re looking for a home loan with money for renovation you’ll need to tap into the equity in your home. You’re essentially refinancing your home and increasing your loan amount to fund your home improvements. But there’s a catch. A few of them, actually.
First of all, you need to think about your loan to value ratio (LVR) – how much is your house worth compared to how much you still owe? If you have a high LVR (where you still owe most of its value) you won’t have the equity available.
Secondly, by rolling your renovations costs into your home loan, you now have a bigger mortgage. You’ll be repaying these borrowings for the life of the loan – that could be up to 30 years. What might seem like a just a small difference to your repayments now can add up over time, costing your more in the long run.
You also might not be in the position yet to extend your home loan. If you’re looking to buy a new house, you’ll find that home loans generally don’t include renovation costs. So you’ll need to look elsewhere.
A more personal choice
Rather than mess about with your mortgage, you might like to consider a renovation loan. A renovation loan is simply a personal loan you’re using to fund your renovation costs. And they come with a few choices.
Think secured or unsecured?
You can choose to secure your loan against something of value that you own, like a car, home or term deposit. It’s less risky for a lender to loan you money so you can usually access a lower interest rate. You may also be able to borrow a larger amount and get a longer loan term. But on the flipside, you give your lender the right to seize your asset if you fail to make repayments.
However most personal loans are unsecured, with no assets used as security against the loan. A lender will choose to loan you money based on how creditworthy you are. It’s more of a risk for them as they have no guarantee, they’ll just be looking at whether or not they think you’ll be able to pay money back. Because of this, you’ll probably be offered a higher interest rate, lower loan amount or a shorter term. But the application and approval process are usually quicker, you’ll have more freedom to use the funds and your assets aren’t directly at risk if you default.
Why choose a secured loan?
+ Lower rates
+ Borrowing potential increased
+ Longer terms available
- Can take longer to approve
- Your asset is at risk if you fail to pay
Why choose an unsecured loan?
+ Greater freedom
+ Quick application process
- Higher rates
- Less borrowing potential
- Shorter loan terms
Keeping your interest rate fixed or variable?
You can also choose what type of interest you’d like to pay, either at a fixed rate or variable.
If you choose to fix your interest at a rate, you can be confident that it will remain the same for the life of your loan. You’ll usually be offered a higher interest rate than for variable rate loans, but if variable rates go up, you’re protected.
With a variable-rate loan, your interest will move up and down with the market. So if the market interest rate goes down, so will your repayments. But, if they go up, you’ll be paying more.
Remember that you may have less flexibility to make early repayments with a fixed rate. But many online loan providers offer no early repayment fees regardless of whether your loan is fixed or variable. So just be sure to check with your lender first.
Why choose a variable rate loan?
+ Usually more flexibility to repay your loan early
+ You’ll benefit from lower repayments if interest rates go down
+ Rates are competitive
- A rate increase will result in higher repayments
- Budgeting is harder
Why choose a fixed-rate loan?
+ Know what your repayments will be for the life of the loan
+ Easier to budget
- More likely to have early repayment fees
- May be less flexible depending on provider
Anything else to know?
When you’re thinking about all things loan, there are a few other terms you probably want to be familiar with.
Fixed-term vs line of credit
A fixed-term loan is a traditional kind of loan – you get the money as a lump sum and then pay it off within the agreed time period. You make regular repayments and know exactly how long it will take you to pay back your loan.
A line of credit is a bit different as it works more like a credit card. It’s up to you when you draw on the funds from your ongoing credit facility – you basically access the money when you need it. You then pay off the debt (including interest) in instalments. But the bonus is that you only pay interest on the money that you’ve actually used, not the whole loan amount.
Special or limited purpose loans
If you’re using the loan for a specific purpose you may be able to access personal loans with lower interest rates some lenders offer.
With the introduction of comprehensive credit reporting (CCR), credit providers now must include extra ‘positive’ information in your credit report, such as the type of credit you hold, the amount of credit and whether you pay your bills on time. Previously, credit reports didn’t give the complete picture – they only showed the ‘black marks’ or negative credit events (such as missed payments or defaults).
That means risk-based pricing has become more common. Most lenders now tailor the loans offered to you and give you a ‘personalised’ interest rate. They’ll look at your credit history, financial situation, the loan type, the loan amount and a range of other factors to build your unique risk profile. The rate you get is based on the probability (or risk) of you defaulting on your loan.
If you’re considered more likely to pay back the loan, you’re ‘lower risk’ and you’ll be rewarded with a lower rate. But expect to get a higher rate if you’re ‘higher risk’.
The right loan for you
Feeling a bit spoiled for choice? Keep it simple. Ask yourself:
What’s the interest rate like? Before choosing your loan type, you should compare renovation loan rates to find the lowest possible rate available
Do you prefer a fixed or variable rate?
Can you realistically make repayments on time?
What is the length of the loan?
And don’t forget to factor in any fees and charges. Answering these questions can go a long way towards making the decision for you – whether you need a home loan with money for renovation or a tailored personal loan.
How much does a renovation loan cost?
Skip the renovation grant. Fund your own dream home improvements with a renovation loan (it’s easier than you might think).
Body: If talk of a renovation grant has got you thinking about home improvements, you might be surprised to learn you have to sink some serious money to get the government cash. For the $25,000 grant, you’ll need to stump up $150,000 of your own money first. Some dreams are big – second home loan big.
But if your renos are south of the 6-figure mark, a simple renovation loan might be a much more manageable option.
How much can I borrow?
A renovation loan is a type of personal loan to cover the costs of a home renovation. So it won’t be like committing to another mortgage. With Plenti, you can borrow between $2,000 and $50,000 for a loan term of 1 to 7 years depending on your loan type.
Paying for your home improvements with a renovation loan means you can pay it off in a much shorter amount of time than a home loan. Even though it might be at a slightly higher interest rate, fewer repayments mean you’ll keep more money in your pocket over the long run.
How much does a renovation loan cost?
Because a renovation loan is a personal loan, the overall cost is based on you, your needs and your situation. Lenders look into a range of factors, namely your credit history, to provide you with a personalised interest rate.
But there are three key features that make up the loan cost:
Interest rate – whether it is fixed or variable
Upfront fees – for example, establishment fees
Ongoing fees – These include monthly fees, late payment fees, and other charges
These costs are then combined to create a comparison rate. This will give you the real cost of the loan over a standard term. And it’s this rate you’ll want to use when making loan comparisons.
Who can apply?
We don’t want your loan to cause you financial strain, so we only loan to responsible borrowers. You generally need to meet the following criteria:
You’re 21 years or older
You’re an Australian citizen or permanent resident
You have a regular income source that you can demonstrate
You have a good credit history
If that sounds like you, complete our 1-minute RateEstimate quote. It will give you a summary of your loan options and borrowing power along with a personalised interest rate and fees based on different loan terms. We reward good credit history, so the better your credit, the better rates we can offer.
From there, just select your preferred loan option and begin the easy online application process. It should only take about 10 minutes.
We’ll need to verify who you are, so have your Australian driver’s license or a copy of your passport and documents verifying your current address handy.
We’ll also need to check your income, expenses and liabilities (e.g. credit cards, loans etc) and we can do this online. You can login to a portal that allows you to connect to your bank account and share your data with us. Of course, you’ll need your bank login details for this. For home renovation loans, you’ll also need additional documents outlining the type of renovations you plan to make and any estimates you may have received.
Finally, you’ll need to let us know where to send the money. This bank account will be the same account we use to set up your direct debit payment schedule. You’ll also have the flexibility to make extra repayments at any time.
Then we’ll look at your application and assess if a renovation loan is right for you. We’ll look at:
Your employment stability
Your income (e.g. salary, rent, interest etc)
Your expenses (e.g. mortgage, groceries etc)
Your repayment history
Credit bureau information
Other details you communicate to us
If we’re happy with how it looks, your loan will be approved, and you can get to work. No renovation grant needed.
What happens next?
Once your renovation loan application is approved and paperwork is finalised, boom, we’ll transfer the funds to your nominated bank account the following business day. They should reach your bank account in 1-2 business days.
Your first monthly repayment will be debited directly from your nominated bank account, which you can change at any time by logging into your Plenti account. Remember that late payments will incur fees, so it’s important that you meet your monthly repayments. And if things are going well, you can always make early repayments or pay your loan off in full at any time without incurring any additional charges.
Are renovation costs tax-deductible?
If your property is a rental or if you have plans of renting it out, you can claim the interest charged on your loan on your tax. But don’t expect to claim a tax deduction for the total cost of improvements to a rental property – you can only claim for work that is a repair or maintenance.
Examples of what you can claim include:
Replacing broken windows
Replacing guttering or downpipes
Replacing a part of a fence due to damage (e.g. a fallen tree)
Repairing electrical appliances
Repainting interior walls
Cleaning a swimming pool or oiling a deck
You can’t claim for improvements. And if you’ve made both repairs/maintenance and home improvements, you can only claim an income tax deduction for the cost of your repairs/maintenance if you can separate the cost of the repairs from the cost of the improvements.
How do I compare loans?
Just as everyone’s home is different, there is no one size fits all when it comes to loans for home improvements. While not quite as much fun as poring over floor plans, you do need to do your homework to find the one best suited to your needs.
So how can you decide which loan is right for you? You will first need to make a few key decisions. Planning and considering your situation upfront will help when comparing what loan product is going to be the right match, and offer you the best value.
1. Loan Amount: How much do you really need?
To decide how much you need to borrow, do some research and budget to work how much (approximately) you are going to need for your renovation plan. It’s so easy to get carried away, but it’s smart to only borrow what you really need, even if more than that is offered to you by a lender.
Remember, when you borrow money to pay for something, the actual final ‘cost’ of that item becomes much higher when you factor in the cost of the loan. For example, if you borrow $20,000 to improve your bathroom with a 5 year Unsecured Loan and at a fixed interest rate of 12.50%, that bathroom may actually cost you around $27,417.
2. Repayments: How much can you afford to repay?
Look at your everyday budget, or create one, to see how much you can realistically afford to put towards loan repayments. It’s always good to give yourself a buffer; failure to make a repayment at any time can cost you a lot in fees. And it isn’t good for your credit rating either. Are you expecting any major expenses or changes in income in the next few years, changing where or how much you work, or perhaps hoping to have a baby? Be sure to build this in.
Whether you receive your income weekly, fortnightly or monthly, you need to know how much you have left over at the end of each pay period and how this will align with your repayments. This is to ensure there are no missed payment surprises. It may be worth opening a separate bank account for your repayments and transferring these funds in on payday so you are never caught out.
3. Loan Term: How long will you need to repay?
Divide the total amount of your ideal car loan amount by your planned monthly repayment to get a ballpark amount of time you’ll need to repay the loan. For example, Sarah and David wanted to borrow $24,000 to pay for a new kitchen. Based on their salary and existing expenses, he thought $120 per week / $480 per month would be an affordable repayment. This would be $5,760 per year, meaning in 5 years they’d have paid $28,800— roughly the full amount, accounting for interest and charges.
A longer-term loan might seem attractive as it means lower monthly repayments, however the overall (lifetime) cost of the loan is significantly higher because you’ll pay more in interest, and potential fees. That being said, provided you look for a loan with flexible repayments you’ll be able to take advantage of any future increases in salary that may allow you to pay down your loan faster without penalty.
4. Loan Type: Decide between a secured or unsecured loan?
Given you already have a valuable asset - the property that you are improving - it can be very cost-effective to offer your property as security on your loan. If you are confident in your ability to repay the loan, then a secured loan will get you a better rate and may also unlock access to greater funds. It’s important to be aware that your asset will be at risk if you can’t make the repayments.
5. Compare: Start to request and examine your personalised offers
So now you know roughly how much you need to borrow, what you can afford as a repayment, and how long you’ll need to repay your loan. Nice - next you can start to plug these values directly into lender or comparison sites to get an estimate of your personalised interest rate and repayments.
Start to play with different combinations, such as different loan terms or repayment amounts, and match them against your needs. Need more help deciding? There are many third party agencies (that don’t sell loans) that both rate and compare a broad range of loans.
Canstar is one of the most established financial comparison sites, and they’ve been comparing products without bias since 1992. They release annual star-ratings for a range of personal loans from many providers. To do this Canstar comprehensively and rigorously examines a broad range of loans available across Australia. To come up with an overall score, they award points for:
Price — comparative pricing factoring in interest and fees
Features — like the complexity of the application, the time involved before settlement, product management, customer service and loan closure
These are then aggregated and weighted to produce a total score. This means Canstar’s ratings are reputable and transparent, so you can trust the information they provide but still dig deeper if you want to.
Other comparison sites can also be useful, however, always check around, as some may have a ‘sales’ element - that is they may receive money for the people that visit their website en route to a particular lender. So if the best rate isn’t offering it may not show up on their comparison. They also have ‘promoted’ or ‘featured’ loans, which they are paid to highlight, even if those loans do not truly reflect the best value car loans on the market.
Another way to get information on your lender and loan is to read feedback from real (verified) customers’ on ProductReview.com.au.
What questions should I ask when choosing a loan?
Here’s a useful checklist to be confident you understand your loan:
What is the interest rate and the comparison rate?
How do these rates compare to other types of loans?
What are the fees and charges? eg upfront, ongoing, early exit
What are the terms and conditions?
Do the loan term and loan amount fit your needs?
Can you afford the repayments?
Are you comfortable with the lender? Have you checked its reputation and accreditation?
Comparison rates are a good starting point, but you still need to decide what will work best for you. The costs involved are a major factor, but once you have shortlisted a few loans with similar costs, make time for these final checks:
Are there flexible repayment options? Usually, you can choose between weekly, fortnightly or monthly repayments according to what suits your pay cycle. However, not all lenders offer this. It may matter to you, it may not
Compare a loan’s conditions and fees around making extra repayments and paying the loan off before the end of the term. This can be a great way to reduce the overall cost of your car loan - but not if you’ll incur extra penalties
Can you use the funds for the renovation you have planned? Or are your plans still coming together making that a difficult question. You can’t always use the borrowed money for whatever you like. For example, when extending a mortgage, you may only be able to spend the loan funds on improvements that meet the lenders’ criteria. Other types of loans can be more flexible. Do make sure your purchase plans match the lenders policies
What are the options for managing the loan over time? Check and compare how easy the loan will be to manage the repayments, your personal details, any refinancing down the track. The option to manage your account online is often available, but not always, and some lenders have more functionality than others. Using direct debit for repayments is common, yet without it monthly repayments will be much less convenient and you are more likely to be penalised for late payments if you aren’t perfectly disciplined
With this homework under your belt, you’re well on the way to being able to compare a range of loans out there, so you can feel confident you’re choosing the right one for you.
How do I apply for a renovation loan?
Applying for a renovation loan directly online is probably much quicker and easier than you might think. And you might be surprised at how the value stacks up compared to other kinds of loans too.
Am I eligible?
Loan application approval and how much you can borrow, varies from loan to loan, and lender to lender.
For starters, you will need to be:
Over 18 years of age, and in some cases over 21
An Australian citizen or permanent resident
Earning at least $25,000 per year, from a regular, proven source of income. If you are self-employed you will have to provide additional information
The holder of a provisional or full driver’s licence
If you have existing loans or debt there may be fewer options open to you. It’s also a good idea to check the eligibility criteria for any specific lender you are considering before submitting an official application to avoid any unnecessary negative impact to your credit score. Some lenders will have a higher salary threshold for borrowers, and make a point of only lending to those with a high credit score.
What is the exact process?
Once you have shortlisted your preferred lenders you can usually request a quote or rate estimate of your estimated borrowing power and some loan options, before you officially apply. This is a good idea, as this process won’t affect your credit score.
Depending on the lender, if you want to proceed, you can then apply online, over the phone or in-person if the lender has physical branches. You’ll usually need to verify your identity, connect the lender to your online banking so they can verify your income and expenses and potentially provide additional information based on your loan choice. For example, if you are applying for a secured loan, you’ll need to provide information about the property you are providing as security.
If approved, you’ll then need to accept your loan agreement. The majority of renovation loan agreements can be signed and accepted electronically.
What documents will I need to apply?
To process your application a lender will typically ask you to show:
Proof of identification: an Australian drivers licence or a passport
Proof of address: copies of your recent utility bills
Verification of a stable income: payslips, bank statements or tax returns
Details of your expenses and liabilities: bank, credit card and loan statements
Plenti has a streamlined online application portal, where you can connect your bank details securely. That’s one of the ways we make applying for a loan simpler, faster and easier than ever.
What will your lender consider?
Your lender will review:
Your employment stability
Your income (eg salary, rent, interest etc)
Your expenses (eg mortgage, groceries etc)
Your repayment history on other loans
Credit agency/bureau information (Credit Report and Score/Ratings
These findings will determine if you’ll be approved, and if so then for how much you’ll be able to borrow. Often the interest rate offered will be lower if you have a good credit rating. If you’ve had problems paying your bills and debts in the past, you may only be offered a loan at higher rates.
What is my Credit Score?
Based on the information in your credit report, your credit score, or rating, is a single number that sums up how trustworthy you are as a borrower. Credit scores are typically on a scale of 0 – 1,200 or 0 – 1,000 depending on the credit agency.
The higher your credit score, the more ‘reliable’ you are perceived to be and the greater the likelihood of your loan being approved, at a lower interest rate. Now that the industry uses comprehensive credit reporting (CCR), credit reports are more detailed so that lenders have a better — positive and negative — picture.
To calculate your credit score, credit agencies will assess:
How much money you’ve borrowed in the past
How much credit you currently have
How many, and what type of credit applications, you’ve made - This can now include payday loans and buy-now-pay-later services such as AfterPay
Whether you usually pay your bills and loan repayments on time
Any loan defaults
Any court judgments
Information from your bank, telco, insurance and utility companies
Your age, address and employment situation
Up to two years of your general financial history
You can request your report and rating/score from credit rating agencies before you go through with a loan application. This does not usually impact your credit score. Be aware that because there are multiple credit agencies, the one your lender uses may not be exactly the same.
Get a free credit check from one of Australia’s major credit rating agencies: Equifax, Experian or Illion.
How do I improve my chances of getting approved?
Applying for a loan has the potential to impact your credit score, particularly if your application is declined. It’s therefore important that you put your best foot forward before beginning the application process. We’ve assembled a useful selection of tips to help you submit a strong loan application:
1. Make sure you pay your existing debts on time: Did you know that repayments that are more than 14 days late may be recorded on your credit file? While less serious than a default, a series of late repayments can have an equally negative impact on your credit score. Making late repayments also sends a bad message to a prospective lender and may result in you paying higher interest rates.
If you do ever find yourself behind on your repayments, it’s important you contact your lender directly. Working with your lender toward a mutually beneficial outcome can help to protect your credit score. Remember, it’s far easier to protect a good credit score than it is to bolster a weak one.
2. Only request as much as you need to borrow: When assessing your application a lender will look at whether you can service a loan. What this means is that, after all your expenses, do you have income left over to meet the repayments of your proposed loan. If you request an amount that is more than your finances say you are able to repay, it’s highly unlikely you will get approved.
In some cases, a lender may offer you a longer loan term to reduce your repayments but it’s best to do your homework first. Use a repayment calculator and budget to figure out what you can reasonably afford.
3. Review your credit history: Australia has three main credit bureaus, Equifax, Illion, and Experian. You can request a free copy of your credit score once a year. Once you’ve verified your identity (i.e. with a driver’s license, passport etc.) the bureau is required to provide you with your credit report within 10 days.
Your credit report will provide an overview of your credit history, including previous loans, existing debts, and your performance as a borrower. You should ensure all the information contained in your credit report is accurate, and if not, contact the bureau to have it remedied. This will have a direct impact on your credit score. If you’re unsure of how to interpret your credit score, see this ASIC guide.
4. Pay down existing debts: Lenders may look unfavourably on an application for individuals with large amounts of debt, particularly if the debts are already at the limits of what you can afford. It’s important to demonstrate a concerted effort to repay your existing debts to a reasonable level.
This applies, even if your personal loan is for the purpose of consolidating your debt. While a move to lower interest rates makes sense, it may be harder to get approved unless you’ve opened up some additional capacity between your income and expenses.
5. Minimise your credit card balance: Using a credit card can be a great way to help boost your credit rating by demonstrating you are financially responsible. However, you need to manage your credit card carefully to ensure your balance is consistently low. Failure to make repayments can have an equally negative impact on your credit score.
Finally, lenders are now required to assess your application based on your credit card limits, not the outstanding balance. If you have unused cards or excess limits look to reduce them before you apply for a new loan.
6. Within the advertised range, most lenders apply loan capping rules: This means they adjust the maximum loan amount you may be eligible for based on your credit score, income, mortgage status and a range of other factors. This maximum loan eligibility will usually be communicated to you when you get an initial quote or rate estimate from a lender.
7. Counter-offers: Even once you have applied with a lender for a specific loan amount, they may come back to you with a ‘counter-offer’. A ‘counter-offer’ is a conditional approval based on a loan amount that is lower than the amount you’ve requested but one the lender believes you can afford and meets their responsible lending requirements.
Whilst it may be tempting to borrow as much as you can, make sure your repayments will be realistic to make within your budget. This will be a significant factor in determining whether your loan will be approved.
At Plenti, we assess your loan application in line with our credit criteria and our responsible lending obligations. Whilst no guarantee, following the tips above will go a long way to improving the prospect of successful loan approval.
How long will it take to get approved?
At Plenti, once your loan application is approved (and you have accepted your loan contract) your funds are transferred into your account the following business day.
The funds will be transferred into the same account that you have nominated for your direct debits. And then it’s over to you, to start that renovation!
Written bySebastian Paulin
Sebastian has worked with Australia’s leading banks and fintechs for over 12 years building better experiences for consumers.