You never know when you can be hit with a financial crisis, no matter how small or big. The point is that you may not always be prepared to meet the cash crunch you are faced with. Sometimes, it can even be difficult to explain the reason for your financial shortfall. That’s where personal loans come into the picture.
Whether you’re planning a wedding and forgot to include miscellaneous costs like printing place cards or your vacation is nearing and you failed to account for extra luggage to carry your newborn’s supplies, a personal loan can be your one-stop solution here. The bank has no interest in knowing whether your place cards are going to be vintage or avant-garde or how many toys and diapers your baby’s luggage is going to have. In fact, when applying for a personal loan, you don’t have to give a reason for the application. That’s the beauty of it.
Almost every bank in Singapore offers personal loans to its customers. These include Citi, HSBC, Maybank, OCBC, UOB, and DBS, among others. Most of these loans offered are unsecured where you don’t have to pledge any collateral. However, a few financial institutions might also offer personal loans that are secured in the event you don’t meet their criteria.
Applying for personal loans in Singapore is quite convenient and free of any hassle. You can visit the bank in person and apply for a loan or you can directly visit the bank's website to make an online application. Depending on the bank and the loan, you might also be able to apply through phone banking and SMS banking facilities. If you're an existing customer with a bank, you could be able to use their internet banking facility or dedicated mobile app to apply for a personal loan without providing any documents. Additionally, you can use third-party websites such as BankBazaar to directly apply for a personal loan online conveniently.
However, when you apply for a personal loan, you must determine if the loan will really meet your requirements. These could be in terms of the loan quantum approved, income criteria, and tenure of the loan, to name a few.
Visit the Bank
You can directly walk into the closest branch of the bank where you want to apply for a personal loan. You can talk to the bank executive in person and place a request for the loan. You might have to fill up an application form and submit a few relevant documents as asked by the bank. When you apply through this method, you have the scope of clearing any queries you might have regarding the loan by simply taking to the executive in person. In this case, if there’s any mistake made while making the application or filling the form, you can rectify it right there and save time on the application/approval process.
Request a Call Back From the Bank
When you want to apply for a personal loan, many banks today provide an online form for requesting a call back. You will find this form on the bank’s website. You have to fill this form with relevant information asked such as your name and contact details. Once you submit this form, an executive from the bank will call you on the number you have provided and the time you have indicated as convenient for you to guide you through the application process. At this point, you can also clarify any doubts you have regarding the loan or the application process.
Online Application Via Bank’s Website
The easiest way to apply for a loan is online. You will find the online form available directly on the dedicated personal loan webpage on the bank’s website. You will have to fill out the relevant details on this form and attach a soft copy of all the relevant documents to complete the application process online. This process eliminates the need to go down to the bank during business hours, wait your turn to speak to an executive and complete the same process.
Besides, some banks provide instant approval when you apply online. In this process, you have the option of applying for a personal loan on the go when the need arises. Some banks offer an approval-in-principle within a minute.
Apply Using Internet Banking Facility
Most banks offer internet or online banking to its customers. This facility can only be used by individuals who already have an existing account with the bank. You can use this facility to apply for a personal loan online. However, you have to activate your internet banking account in order to use this facility and apply for the loan. This is also considered a swift application mode and you can get quick approval on your application. In case of internet banking too, you can apply for personal loans on the go, at any time without worrying about banking hours.
Apply Using Mobile Apps
Another hassle-free and quick mode of application would include applications made using mobile apps. Most banks today have apps that not only allow you to perform banking operations but you can also use them to apply for different financial products and services. You have to simply log into your app using your username and password. In case of a few banks, a PIN may be generated every time you log in.
Once you log in, you can apply for the loan by filling up the dedicated form on the app. You might also have to upload and submit scanned copies of the relevant documents to complete the application process. Depending on the bank and loan, you might also receive instant approval through the app.
Apply Through Phone Banking
You can apply for a personal loan by calling on the dedicated hotline number(s) provided by the bank. Through phone banking, you will be able to get in touch with an executive from the bank to place your application request. He/she will be able to help you with the subsequent steps to apply for the loan. Additionally, if you have any queries related to the application process, you can clarify them with the phone banking executive. To apply through this method, however, you must be an existing customer of the bank.
Apply Through SMS Banking
SMS banking is another popular mode of performing banking operations, including applying for a loan. Banks provide a dedicated number where you must send an SMS in the format provided for application for specific products/services. Once the bank receives the application text, they will get in touch with you and guide you through the subsequent steps in the application process. You don’t have to visit the bank which saves a lot of your time.
Application Made Through Third-Party Websites
There are various third-party websites in Singapore which allow you to apply for a personal loan online. You will have to simply find the relevant personal loan application form on the website, fill the relevant details, and submit the form online. The third party website might also ask you to submit relevant documents based on which you will be granted approval. BankBazaar is a third-party website in Singapore through which you can apply for a personal loan. Several banks in Singapore have partnered with BankBazaar to provide online application facility directly through BankBazaar’s website. The application process is easy, quick and convenient.
Purpose of the Loan
A personal loan might help you address your immediate financial need but it also charges an interest on the amount you borrow and other charges. So, you really need to think about the reason for which you want the loan. If you’re planning to purchase a house or a car, there are other loans available in the market, such as a car loan or a home loan. In this case, getting a personal loan wouldn’t really benefit you. This is because personal loans charge you higher interest as they are unsecured.
Similarly, if you’re planning to finance your or your ward’s education through a loan, it’s not generally advisable to go for a personal loan. In this case, you can apply for a study loan or a tuition fee loan that come with added benefits such as deferred repayment option until you complete your education or get a job. There are several banks and lending organisations in Singapore that offer you these loans. You can apply for a personal loan in case you need funds immediately and other loan options are undesirable to meet your requirement.
Loan Quantum Granted
Another important consideration while taking a personal loan would be the quantum of the loan granted. You might be needing a certain amount of funds to finance your immediate requirements. But, most banks will offer you personal loans up to a particular limit. Moreover, if your credit score is bad, banks might not even approve the amount you requested for. In this case, you will get a loan amount lesser than the one requested, if at all.
In such a situation, you may consider applying for multiple personal loans from different banks. However, it is usually difficult to manage more than one loan, simultaneously. So, you should consider shopping around until you find a lender willing to lend you the whole amount required, or take a small loan, make timely repayments, improve your score and apply for another loan. The latter, however, will take longer and might not meet your immediate requirement.
On the other hand, if you have a good score, lenders may be willing to offer you more than what you have requested for or intend to borrow. It might be tempting to accept such an offer, but again, you need to consider if you really need that amount because, after all, it isn’t free money. Higher loan quantum means higher repayments.
Tenure of the Loan
Most personal loans in Singapore are offered from 1 year and up to 5 years. HSBC’s Personal Loan is an exception because it offers a tenure of up to 7 years. Here’s why the tenure of a loan is an important factor to consider; if you choose a short tenure, it means you have to make larger monthly instalments. But that also means you’ll get rid of this debt sooner and you’ll save on interest charges.
Related Read: Personal Loan Interest Rates
On the other hand, choosing a longer tenure will ease the stress of keeping up with higher monthly payments on the loan because the instalment amount will be smaller, but, you’ll pay more in terms of interest.
If you can keep up with higher payments because you’re expecting more income shortly or the loan amount you have requested is not large, consider taking a shorter tenure. You can choose a longer tenure if you already have other financial commitments and are unsure if you can continuously repay a higher instalment amount every month.
Rates of Interest Charged on the Loan
Perhaps, the most important deciding factor when choosing a personal loan is the interest rate charged. Personal loan interest rates in Singapore vary between 8% p.a. and 15% p.a. depending on the loan.
When looking for a personal loan, you will see two types of interest for the loan - an Applied Interest Rate (AIR) and the corresponding Effective Interest Rate (EIR). The AIR will always be lower than the EIR. However, when comparing different loans, always be sure to consider the EIR because that will reflect the actual cost of borrowing. It includes all other fees and charges applicable on your loan starting from the processing fee to late payment charges, and so on. Personal instalment loans charge a fixed interest rate, meaning the rate will not fluctuate depending on market conditions. It also means that the monthly repayments will be fixed throughout the loan tenure so you can plan your finances better.
A personal line of credit, on the other hand, will have varying monthly repayments as it is a revolving credit facility and the interest will be charged based on the utilised amount every month.
Fees and Charges Associated With The Loan
As previously mentioned, interest rates aren’t the only charges associated with a personal loan. Usually, there’s a processing fee levied when you opt for a personal loan. This fee is usually deducted from the approved loan amount before disbursement. The processing fee is usually between 3% and 5% of the approved loan amount, depending on the bank that offers it.
If you formally accept the loan from a bank and then choose to cancel it, you will be charged a cancellation fee for it. If you fail to make timely payments on your loan, you will be charged a late payment fee. Also, if you choose to repay your loan before the tenure ends, you will be charged an early termination/repayment fee. For instance, HSBC charges an early repayment fee of 2.5% of the outstanding loan amount for early repayment, whereas, DBS charges a flat S$150 per early repayment of a personal loan.
Monthly Income Requirements
Income is another factor that plays a key role when you’re opting for a personal loan. In Singapore, most banks require you to earn a minimum income of S$30,000 p.a. when you’re applying for a personal loan. In case of a few banks, the income requirement criterion stands at a minimum of S$20,000 p.a.
Besides, the annual income can also play a crucial factor in helping you decide the loan quantum. In Singapore, you can generally borrow up to 4x your monthly income if you have an annual income of S$30,000 p.a. or above. People earning less than S$30,000 p.a. can get up to 2x the monthly income. Depending on the bank, you can also borrow up to 8x your monthly income. For instance, with HSBC’s Personal Loan, you can borrow up to 8x your monthly income if you earn at least S$120,000 p.a. or more. If you earn S$120,000 p.a. or above and apply for a DBS Personal Loan, you can borrow up to 10x your monthly income.
Role of Your Credit Report
Your credit report and the corresponding score plays a huge role in the approval or rejection of your loan application. Any credit facility you apply for will involve the lender checking your credit report. Your report will have a record of your repayment history, your credit utilisation ratio, open credit lines, late/missed payments, defaults, and more. It is an insight into your overall credit behaviour, i.e. how you have maintained your loans thus far.
The “Grade” ranges from AA to HH and the “Score” from 1000 to 2000. It also tells the lender the probability of default. For instance, if you have a grade of AA with a corresponding score of 2000, the probability of default on your personal loan is only up to 0.27%. However, if you have a grade of HH with a score of 1000, your probability of default goes above 3.48%.
Banks evaluate your report to decide if and how much they are willing to lend you and at what cost. The lower the risk of default associated with your credit score, the higher are your chances of getting app roval on your loan.
Related Read: Credit Bureau Report
Need for Collateral
Depending on the bank, personal loans can be either secured or unsecured. Most banks in Singapore offer unsecured personal loans where you don’t have to provide any collateral for the loan to be approved. For all secured personal loans, you have to pledge a collateral. In case you fail to make repayments over a long duration or you default completely on your loan, your collateral can be seized by the bank or the lending organisation. In case of secured loans, the rates of interest charged are comparatively lower and thus your loan would turn out more cost-effective in the long run.
Unsecured loans, on the other hand, have no such collateral requirements. As these loans are of unsecured nature, the interest rates charged are usually higher than those offered with secured personal loans. Thus, you must take your time in assessing if you want to opt for a secured or an unsecured loan. Secured loans might charge you with lower rates of interest but your collateral is also placed at risk when you opt for one. A collateral can also come into the picture when you don’t meet all the eligibility criteria for the loan. For instance, if you don’t meet the income criterion for the loan, you can request the bank to accept a collateral and consider your loan application.
Related Read: Personal Loan Eligibility Singapore
Fortunately, finding a personal loan in Singapore isn’t a cumbersome task. Almost every bank and financial institution offers personal loans to new as well as existing customers. You should ideally compare the features, benefits, rates and requirements of all possible personal loans before choosing one. For instance, if you want a small amount and want to repay it as soon as possible, say, within a year, try finding a loan option that doesn’t charge you with an early repayment fee when you do so. If you don’t earn the standard annual income of S$30,000 that most banks require, look for one that offers you the loan if you earn at least S$20,000 per year, or, look for one that is willing to accept a collateral and still offer you the published interest rate instead of a higher one for not meeting the criteria set forth. Also, be sure to check for any promotional offers running across banks. They can be in the form of discounted interest rates or a processing fee waiver, and so on.