Home Renovation Loans

Need a personal loan for Renovations? Compare low-rate offers with Savvy today.

Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
Our authors
, updated on July 3rd, 2024       

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What is a home improvement loan?

A home improvement loan is a personal loan that can be used to cover the cost of any sort of property renovation or improvement, whether on your personal home or an investment property. This can include:

  • Kitchen and bathroom remodelling
  • Plumbing and electrical work
  • Home repairs
  • Building additional living space
  • Adding windows or skylights
  • Garden landscaping
  • Installing a swimming pool
  • Energy efficiency improvements such as solar panels

A home improvement loan isn’t a product in itself, meaning you aren’t restricted to using the approved funds for renovations in the same way you’re required to dedicate 100% of the funds you receive from a car loan to the purchase of your car. Personal loans are designed to be versatile. You can take out as little as $2,000 all the way up to $75,000 depending on your circumstances and needs, and can use the funds for any type of improvement you wish, from minor landscaping to expanding your home with an extension.

What type of personal loan can I use for my home renovations?

There are several types of personal loan that can be suitable for covering the cost of home improvements. It’s important to understand the differences between them before diving into your application, as you could miss out on the ideal offer for you by not taking the time to consider your options. The main loan types for renovation finance are:

Unsecured personal loan

The most common and widely available type of personal finance, unsecured loans are offered up to as much as $75,000, take up to seven years to repay and don’t require you to put forward any valuable assets as collateral for the agreement. Because of this, you can have your application processed, approved and funded in a short span of time and get the wheels in motion on your renovation as soon as 24 hours after you apply. It’s important to note, though, that these loans typically come with higher rates and fees than other finance types due to the fact that they’re seen as inherently riskier by lenders.

Secured personal loan

Unlike unsecured loans, secured personal finance does require an asset to be put forward as collateral for your loan, typically a car or motorcycle. There are a variety of benefits which come with secured loans, most notably that the rates and fees offered are lower due to the collateral attached to the loan and borrowing ranges are increased to $100,000. The need for your lender to assess the suitability of your asset as a means of potentially recouping lost funds means many prospective borrowers won’t be able to qualify for this type of loan due to the age and condition of their car.

Personal line of credit

While loans involve you receiving a lump sum from the beginning of your agreement and paying it off in instalments across a set period, lines of credit are different. Under this type of finance, you’re approved for a set limit and can withdraw up to that amount whenever you see fit, only paying interest on the portion of the balance you use. This type of finance can be useful for those who are arranging ongoing renovations and prefer the freedom to access funds from their revolving credit line when they need them. Interest and fees are often the highest on these loans, however.

Green loan

If you’re looking to make an environmentally friendly installation or purchase, you might be in the best position to take advantage of a green loan. These are personal loans offered by select lenders who reward borrowers for reducing their carbon footprint and opting for more energy-efficient systems by reducing their interest and fees. The potential uses for green loans are obviously more restrictive that the other loan types mentioned above, but some of the ways you can make use of them include:

  • The installation of solar panels
  • The installation of more energy-efficient air conditioning
  • The installation of a rainwater tank or other water harvesting systems
  • Double-glazing your windows or further insulating your walls, floors and ceilings
  • More eco-friendly appliances such as washing machines, refrigerators dishwashers

How do I compare home improvement loans?

Because they’re the same as any other personal loan, it’s important to compare home improvement loans just as thoroughly. Fortunately, you can do this right here with Savvy. With reputable lending partners from around Australia, you can quickly find and compare some of the best offers on the market right now so you can choose your ideal loan with more confidence. Some of the key ways to compare loans include:

  • Loan amount: you’ll first need to make sure the lenders you’re looking at can approve you for the loan amount you need. Although you’ll have the potential to borrow as much as $75,000, some lenders will cap their loans at just $50,000 instead. It’s especially important if you find yourself looking at larger amounts above this mark or smaller loans of $5,000 or less, as these are the areas where lenders are most likely to differ.
  • Interest rate: one of the most important areas to nail down on your loan is the best interest rate you can manage, as this is the most significant cost factor on this type of finance. Your rate will be set based on a variety of variables, such as the size of your loan, your credit rating and the stability of your income, among others, so it’s likely to differ substantially between borrowers. Even a small difference in rate can save you hundreds of dollars, so it’s crucial to compare and find the lowest available to you.
  • Fees: many loans also come with a range of extra costs attached that eat into your money even further. The most important to look for are establishment (up to $595) and ongoing (up to $10 per month) fees, although both of these charges are commonly not imposed by lenders. Just like interest rates, seemingly small differences between costs can make a difference. For instance, you’ll save $300 on your five-year loan if you opt for a deal which comes with a $5 ongoing fee instead of $10. 
  • Loan term: you will typically be able to repay your loan over one to seven years. Although shorter loan terms are likely to cost less overall, it's important not to overburden yourself with loan payments and put yourself at risk of financial stress or default. Look for a term that suits your needs. If you want to pay off your loan in 12 months, for example, you can rule out any lenders that impose three-year term minimums.
  • Early repayments: try to lock in a loan that allows you to pay more than the minimum required amount each month without penalty, as this can help you slash the total cost of the agreement in the long run. The shorter your loan term, the faster your outstanding loan debt decreases which, in turn, decreases the interest charged at a quicker rate. For instance, you could save $500 and trim five months off your agreement by paying an extra $100 each month on your $20,000, three-year loan at 10% p.a.
  • Other features: there are other handy features you may gravitate towards as a borrower when comparing loan options. Redraw facilities are becoming more common on personal loans, enabling you to access the extra funds paid throughout your loan term and withdraw them for whatever purpose you need. These are useful if you decide to conduct more renovations before the end of your loan term. Also, you should look to ensure you can make your payments on your preferred schedule, either weekly, fortnightly or monthly, to suit your needs.

Can I use my mortgage to cover renovations instead?

Yes – many homeowners lean towards refinancing their existing home loan when covering the cost of renovations. However, it isn’t always the most cost-effective way to accomplish your goals, as finance costs build based on interest rate and term length. The easiest way to understand this is by looking at how interest adds up over different loan terms. Home improvement loans run for up to seven years, but the average home loan lasts for between 25 and 30. This results in a significant difference in how much interest you pay.

For example, if you borrowed $15,000 to redo your kitchen and added that to your 30-year, $600,000 home loan with an interest rate of 3.5% p.a., your repayments would only cost less than $70 extra per month. However, you’d pay an additional total of $9,248 in interest alone, meaning your $15,000 kitchen would end up costing you closer to $25,000.

Compare that with a three-year home improvement loan. To borrow $15,000 over three years at 10% p.a. would cost $2,424.28 in interest over the term, representing a saving of almost $7,000. However, it adds a new payment of $484 per month to your books for three years. This is why it’s always crucial to consider your options closely when determining the best solution for your home improvements.

Alternatively, you may wish to take out a construction loan. These are more suitable for significant renovations and are structured differently to other loan types. Payments are released in stages, enabling you to pay your builder in staggered instalments across the process. In some cases, you may only be required to pay interest on your loan during the period of construction, saving you on much-needed funds during a busy period. However, these aren’t as suited to smaller builds and may require significant deposits, which aren’t a mandatory aspect of home improvement loans.

Types of personal loan

Why compare personal loans through Savvy?

Common questions about financing your home improvements

What is a comparison rate?

A comparison rate shows the true cost of a loan and is usually expressed as a percentage that tends to be slightly higher than the interest rate. This figure incorporates both the interest rate and main fees that apply to your loan, such as ongoing and establishment fees. Because each of these can cost a reasonable amount extra, you should always compare loans based on their interest rates also.

How much will my repayments cost?

This will depend on how much you want to borrow and for how long. If you’re not sure, though, you can use our loan repayment calculator to find out how much different loans will cost you based on varying term lengths, interest rates and repayment schedules.

How is my home improvement loan interest rate calculated?

Your home improvement loan interest rate is calculated based on a couple of different factors, which are similar to the factors which shape your borrowing power. When you apply for a loan, the lender examines your work situation and how much you earn, as well as your recent history taking on and repaying debt. Your interest rate generally reflects the level of risk your lender perceives in your application.

Should I just put the cost of my home improvements on my credit card?

This depends on the size of loan you’re looking to take out. If you only need a small amount of $2,000 or less, you might be able to benefit from your credit card’s interest-free period. However, if it’s not an amount you’re capable of paying off within the month, you’ll be better off taking out a renovation loan and avoiding the high interest rates which apply to credit cards.

Helpful personal loan guides

Still looking for the right personal loan?

Personal loans come in all shapes and sizes, so read more about the ways you can use them, as well as how they might work for you.