When you choose to renovate your property in Dubai, it can prove to be a costly affair.
While many reach out for their credit cards to make payments, they may not be the best solution. In this post, we’re going to share the pros and cons of using credit cards for renovation payments, and why one should consider the alternatives instead when based in Dubai.
What are the pros of using credit cards for renovations
Let’s first understand why many reach for credit cards to pay for renovations in Dubai:
- Rewards points and cash back – If your card has a high earn rate for large purchases, you could earn significant rewards paying for a renovation with a credit card. Many credit cards in Dubai offer points, miles, or cashback on purchases. These purchases could also be those you make for the renovation project.
- Interest-free periods – Some cards offer you extra time to pay off renovation expenses without accumulating interest. These interest-free periods work well for those who’d like to use the credit card for payments without having to worry about the interest on traditional loans.
- Easy to track expenses – It is a good way to stay on top of your expenses and keep a track of them. Use of credit cards helps to stay organized during the renovation work.
What are the cons of using credit cards for renovation
Now before you decide to use credit cards for renovation, let’s understand some of the cons:
- High interest rates and hidden fees – While credit cards offer convenience, they often come with high interest rates. One has to pay in full within the interest-free period to avoid the same and there are often hidden fees such as surcharges and markups on transactions.
- Credit limit restrictions – The high costs of renovations may exceed your credit card limit. This will require you to seek additional funding sources for the renovation, making cash flow management tough.
- Limited contractor acceptance and fees – Many contractors in Dubai do not accept credit cards for large payments. They may even charge an additional fee or markup for credit card usage.
- Debt burden ratio impact – Using a credit card to finance your renovation can also affect your debt burden ratio, a key metric monitored by the Central Bank of the UAE (CBUAE). Exceeding the recommended debt threshold impacts your financial health and limits future borrowing options.
Also read: How to finance home renovation in Dubai
Alternatives to Using a Credit Card for Renovations
Considering the drawbacks of using credit cards, it’s wise to explore better alternatives to finance renovations. Here are some popular options to explore:
1. Renovation Now, Pay Later (RNPL) with Reno Homes
Many Dubai residents have started to opt for RNPL, a newer financing option to start their renovation projects. This allows them to pay for them in interest-free monthly installments after the work is complete.
- Pros: The plus here is that the upfront cost is lower. The payment plan is flexible, and interest-free.
- Cons: This payment option may not be available with all contractors or renovation projects.
2. Personal Loans
Personal loans offer a lump sum payment upfront, which can be used for any purpose, including home renovations. These loans typically come with fixed interest rates and structured repayment plans, making it easier to manage your finances over time.
- Pros: These have lower interest rates compared to credit cards, offer higher loan amounts, and a fixed repayment schedule.
- Cons: The downside is that personal loans often require a strong credit history, have high rejection rates, and can affect your Debt Burden Ratio (DBR). The approval process can also be lengthy.
3. Payment Plans with Contractors
Many contractors in Dubai offer flexible payment plans, allowing you to pay for renovations in installments rather than upfront. This is an attractive option if you want to spread the cost over a longer period without paying interest.
- Pros: Since this is a mutually agreed upon plan, both clients and builders remain in a win-win position. It is modeled to make it easier to budget for payments without interest, and on negotiable terms.
- Cons: It is hard to come by and often has high interest rates. Contractors require 50-70% of the total cost as an upfront payment and as a one-off customer, it’s nearly impossible to negotiate for better.
4. Use personal savings
Another alternative to using credit cars for renovations is your own savings. But this may require you to consider your current expenses and future requirements before investing into a renovation project.
- Pros: Using personal savings for renovations in Dubai allows you to avoid interest rates. You also get better control over your finances by avoiding debt.
- Cons: Renovations require a huge upfront cost, sometimes exceeding 50% of the property’s value. This can significantly deplete your savings and impact your day-to-day cash flow.
Also read: Renovation cost trends over time
Financial Tips for Managing Large Renovation Expenses
We understand that managing your renovation budget can be tricky. Here are some tips from our experts:
- Create a Detailed Budget – Renovation work has many parts. Break it up into smaller tasks and allocate a budget for each part. This will keep your expenses in check and curb overspending.
- Plan for Unexpected Costs – Set aside at least 10-15% of your renovation budget for unforeseen expenses due to reasons like delays or material price rise. Exigency planning is a must.
- Pay Off Debt Quickly – Plan your repayments if using a credit card or picking a loan, as soon as possible to avoid high interest rates and long- term debts. Handle your finances carefully.
- Compare Interest Rates – Always do good research to find out the best loan or credit card terms being offered. There are some banks that offer lower interest rates or promotional rates for home improvement projects.
Why renovate now pay later is the best option for renovations in Dubai
Renovation now, Pay Later (RNPL) can be safely concluded as the best option for homeowners in Dubai.
While credit cards and loans are common ways to finance renovations, RNPL lets you complete your renovations spreading the cost over manageable monthly installments without interest. This flexible financing solution is a boon for those who don’t wish to get caught in winding loan approval processes or be buried under high interest rates.
Key Benefits of RNPL:
- Smaller upfront cost and small interest rate – It lets you begin your renovation work without an initial payment and a much smaller interest fee. This helps with starting the project sooner and an earlier completion.
- Easy Installments – You can pay for your project over time, breaking the cost of renovation over months. This does not affect your DBR and gives you a faster TAT for the project with an easy ‘set it and forget it’ payment cadence.
- Customizable Payment Plans – What’s even better is that you can tailor the repayment plan to suit your budget and needs.
- Ease of Approval – RNPL often has simpler application processes compared to loans, and many contractors offer this option directly. There is complete transparency between the two parties with regard to allocation of funds and the subsequent repayment.
Conclusion
Renovation is a complex process and getting it financed can be quite a task, especially in Dubai. However, there is no dearth of options to suit different needs.
There is always a credit card which can get you cashbacks or reward points. The only limiting factors here being the credit limit and high-interest rates.
Then there are personal loans, contractors offering payment options, and home improvement loans that offer greater flexibility at lesser costs. However, RNPL is the best choice for those looking at a convenient, interest-free solution to manage renovation expenses.
Reno offers RNPL to make renovation a breeze for its clients.
To look into the modalities of this financing method, schedule a call with our experts.
