Since more and more people are resorting to personal loans when it comes to renovation, Bankmonitor compiled a list of the most optimal credits, reports hvg.hu.
During the past couple years, the interest for personal loans has become half of what it used to be, thus it is worth to take on a loan for purposes that were too risky in the past. According to a survey conducted by a merchant bank, more apartment renovations are carried out with the help of personal loans than before, and the interest rate is growing as well. The reason for this is that offering a margin is not necessary when it comes to personal loans, and that the money can be spent on anything. However, because of this, the interest is higher, so the initial sum for the regular payments is more as well. The question arises: is it worth the price to use personal loans for renovation purposes, or should housing loans be used instead?
How should the decision be made?
Housing loans are primarily taken when someone wants to buy a real estate, or build, extend, renovate, but in some cases they are used for loan conversion. You will have to present a margin, even if your goal is to renovate your home, and the margin will have to be acceptable for the bank. You can expect the bank to give you a loan that covers 60-70% of the estimated expenses.
The terms for the margin are the same with mortgage equity withdrawals, the difference is that you have more options to use them for, but you still have to be clear about your goals when you apply for them. The advantage is that you can spend it on renovation as well (or anything else). The advantage of the personal loan, however, is that with less paperwork, depending on the bank, you can acquire it in a couple hours. The sum of the loan can start at a couple hundred euros, but it can extend to over twenty thousand euros.
Let’s suppose that we have three thousand euros for renovation. Depending on the sum and the goal, we would face with a five-year-long duration, according to other experiences, this is the same with personal loans.
The best offer can be found among the mortgage equity withdrawals, where based on the average of five of the cheapest loans, the annual percentage rate is 5,57 percent, with around 90 euros for regular payments . On the other hand, if we choose a housing loan that can be used for renovation, the number of the offers is much less, than taking a loan to buy a used flat. The APR is 6,61 percent in this case and the regular payment is around 95 euros.
The reason why there is an 8,79 percent APR in the case of personal loans, is that it can be taken without margins. The higher our income is, the more beneficial offers we get.
Even if the mortgage equity withdrawals and housing loans appear cheaper, we would run into a shorter interest period, where the regular payments will grow, because of the interest risks. However, the majority of the personal loans have a fixed interest rate, so in our imaginary case, we would pay roughly the same amount during the five years. Although, the APR for personal loans is half a percent more expensive than for mortgage equity withdrawals, the paperwork takes much less time.
In conclusion, no matter if the sum, personal loans are the best option, as the minimal price for loans is about 3200 euros in the case of mortgages. Still, if we want a bigger amount than in the previous example, mortgages would be a better option.