While interest rates, builder shortages and material costs have made it challenging to take on big renovations in 2023, you can still do a lot on a budget.
For example, the average cost of renovating a bathroom can actually start at around $10,000. Even changing your flooring, cabinetry or painting could have a big impact without costing a fortune – or adding to your mortgage.
So, if there are smaller home improvements you want (or need to make), here are some tips to help you fund them with credit.
Set a budget
As well as costing less, smaller renovations can be easier to budget for compared to major changes.
For starters, focusing on 1–2 key changes can help you get a more accurate quote. It could also speed up the process if you need to apply to your council or body corporate before work begins. And that means less risk of price changes for materials and trades.
But you’ll still need a clear budget for the work you want done. So it can help to ask these questions at the start of the process:
- What do you want to pay for the renovations?
- What’s the maximum you could afford to spend?
The answer to these 2 questions will give you a sense of your lower and upper limit for the renovation. You can then use these figures when you’re considering different quotes for the work.
Compare different finance options
After you have your budget and a quote you’re comfortable with, it’s time to think about how you’ll pay.
Mortgage finance is often considered for major renovations. But for smaller home improvements, there are 2 other types of credit that you could consider.
1. Personal loans
If you’re confident in your budget and want structured repayments that build in the cost of interest and fees, then a personal loan is one option to consider. These loans let you borrow a set amount of money, which could range from a few thousand dollars up to $100,000. You then pay off what you’ve borrowed in instalments, usually over 1–7 years.
Finder analysis has found the average Australian with a personal loan borrows $7,328 over 3 years and the average interest rate for an unsecured personal loan in November 2023 was 10.81% p.a.
There are even some green renovation loans for sustainable upgrades. But keep in mind that interest rates do vary based on the lender, loan terms and your credit score.
2. Credit cards
A credit card can be handy if you need to make changes around your home quickly. For example, if you’re replacing a hot water system, windows or roofing – or if tradespeople only have limited availability. In these situations, paying with a credit card you already have means you wouldn’t need to apply for any new credit (which can take time).
Some people may choose to use a credit card for smaller renovations (or aspects of a larger renovation) to earn rewards. But as credit card interest rates typically range from around 8% p.a. to 27% p.a., it’s important to consider the potential costs. There are also some cards that offer introductory 0% interest rates on purchases for 3–15 months (or longer), which could help you avoid interest on smaller renovations.
Plan your repayments
The cost of a small renovation means it could take less time (and cost less) to pay it off. But it’s still important to have a plan for how you’ll make those repayments.
With a personal loan or mortgage finance, the repayment schedule is something you can consider before you apply. So it may simply be checking whether or not you’re able to make changes if something unexpected comes up (or you want to pay it off early).
If you use a credit card for your renovations, there’s a lot more flexibility in the repayments. That also means there’s more risk of ongoing debt and interest charges. To avoid that, you could use a repayment calculator and budget for repayments over a term that suits you.
A lot of credit cards also offer instalment plans for your purchases or existing balances. These plans give you a way to repay your spending over a fixed period of time, sometimes with a promotional low or 0% interest rate.
Renovations of any size can add value to your property and make it feel more like a home. But remember: planning and choosing the right type of finance for you are key steps in the process, no matter how much (or little) you’re spending.
