Loan to renovate an apartment – when and under what conditions is it worth it?
There are offers specifically for the renovation of the apartment, but may not be available for each applicant. Therefore, we look at the possibility of using a non-purpose loan for the reconstruction of the apartment.
Reconstruction of the apartment may be up to date, because we have not painted our apartment long ago or we would like to replace the old bath for a modern shower. The second reason may be the reconstruction of the apartment if we just bought the apartment, but the financing of the reconstruction of the mortgage loan is not possible. Property prices are so high that many of us cannot afford to buy a new apartment or house. They are forced to buy used, older apartment and refurbish themselves.
In terms of total renovation or minor modifications, a dedicated loan can be the solution for everyone. If we look at loan comparison sites, such as Good Finance, we see that financial institutions offer such loans up to EUR 50,000. Such a sum is sufficient even for a demanding reconstruction.
What can we finance, apart from a loan?
Apart from a non-purpose loan, we do not have many options. Mortgage loans are not used to finance the reconstruction of the apartment.
Building savings can be a convenient solution. This form of financing is also beneficial because we also use the amount of the state premium – and do not pay interest. Unfortunately with this form there is one big problem, if we do not think about reconstruction in advance, we will not get money from building savings.
It is therefore very important to stress that planning also plays a major role in this area of our lives.
So a dedicated loan may be the most appropriate solution. Currently, interest rates have been reduced to such an extent that it may be worth taking out a loan and not waiting for reconstruction until we save the necessary amount.
Must be fulfilled in order for us to approve a special-purpose loan?
A special-purpose loan is offered not only to banks, but also to non-bank companies, so-called non-banknotes. They are financial institutions that have received authorization from the Czech National Bank to provide loans and are therefore authorized to carry out this activity.
The difference between the two financial institutions is that banks are usually stricter. Therefore, it will not approve a loan application for those who have lower incomes or have had difficulty repaying in the past, or who have been on a negative debtor list.
For them there are non-banknotes. In most cases, they also offer loans to banks that have been refused. The fact that they are taking a greater risk of default will be reflected in the price of the loan. Their interest rates will be higher.
Is it worth taking out a loan with much higher interest?
Everyone has to consider whether it pays to finance reconstruction from a high-interest loan. For example, if we borrow USD 60,000 for 5 years with an interest rate of 18.93% pa, we will pay up to USD 93,240, which is more than 55% of the original amount. If we get the same amount from another provider more advantageously, for 7.9% pa interest rate, we will pay 77.556 USD in total, the increase is almost 30%. The difference is huge.
We can agree that paying 55% more for renovation is not worth it. But is it worth paying a 30 percent increase? Let everyone answer their own questions.
It does not matter whether we want to renew the bathroom or reconstruct the apartment just bought, it will certainly cost us some money. As we have seen in the example in the previous paragraph, the terms of the loan greatly affect how much reconstruction will cost us. If we do not expect an increase in our monthly income, we can safely state that the total cost of the loan will be the amount that will cost us labor.
We have to realize that the calculated increase is the amount we would pay extra if we now buy the necessary things. The possibility exists, the loans offer us. Whether it pays – everyone decides on their own.