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    Secured Loans in Singapore

    Secured loans are those that are backed by collaterals either in physical assets, financial assets or anything else deemed valuable by the financial institution one is looking to borrow from.

    Secured loans are considered as safe bets for the bank and thus, usually much easier to secure. The banks or other financial institutions always have the asset to fall back upon if a borrower fails to repay off the loan. The lender can liquidate the collateral to recover the money owed.

    Benefits of Getting a Secured Loan

    • Lesser repayment amount per month than those of unsecured loans.
    • Secured loans usually have more favourable terms of repayment than unsecured loans. This means borrowers can borrow a greater sum of money.
    • Repayments can be spread over a longer tenure.
    • Secured loans are easier to obtain than unsecured loans. The lender has added security with this type of loans making it possible to extend loans even to those borrowers without a great credit score and history.
    • Secured loan helps free up otherwise dormant equity tied up in a borrower’s property, thus, letting the borrower utilise the usually unobtainable capital.
    • Secured loans often have lower interest rates than unsecured loans.
    • Secured loans enables the borrower get a lot of cash that he/she would in usual circumstances take a prolonged amount of time to save.
    • Unlike unsecured loans where the borrower usually has to specify a reason or borrowing the sum, secured loans can be utilised for any purpose the borrower wants. For example, home improvements, paying off other debts, luxury holiday, getting a new car, etc.
    • Borrowers can also insure their repayments, so they do not have to worry in case of job loss or sudden disability to perform their work due to some sickness or accident.

    Secured Vs Unsecured Loans

    Unsecured loans usually charge a fixed rate of interest - whether term loan or revolving loan. Secured loans offer a consumer the choice between a fixed or a floating rate of interest. A more detailed list of differences in their characteristics are as follows:

    Features Secured Loans Unsecured Loans
    Interest rates More affordable Higher than secured loans
    Loan Amount As much as 100% of the value of the collateral A 2 to 4 times of your annual salary/income.
    Credit rating Doesn’t need to be perfect Needs to be good
    Collaterals Required Not required
    Loan Tenure Longer Shorter (1-7 years)
    Monthly repayment amount Lower Higher
    Lender’s Risk Low High
    In event of default Lenders can sell the collateral to recollect the debt Recourse are limited
    Processing Period Shorter as risk is low Longer as a lot of verification needs to be done
    Eligibility

      • Above 21 years old

      • No minimum income requirement

      • Between 21 and 65 years

      • Minimum income requirement varying from bank to bank

    Types of secured loans

    Lombard Lending - This is a type of secured loan that is usually restricted to affluent borrowers. These type of loans allow for the collateral to be anything from vintage cars to antiques to expensive wines, basically anything of high value. The banks use appraisers, of course, to ascertain the collateral value before approving the loan.

    Secured Overdraft vs Secured Loans

    A secured overdraft is similar to secured loans in that in both the cases the borrower has to pledge their asset to the bank as collateral. However, the type of assets pledged and the repayment structure are different in both cases. In case of a secured overdraft, the acceptable assets can include bank deposits, shares or physical property.

    If the borrower is unable to repay their debt, the banks have every right to sell their assets pledged at the time of getting the loan, to recover the money owed by the borrower. The borrower is liable for any difference in the amount borrowed and the amount recovered if the proceeds are not enough to cover the entire debt.

    Secured overdraft can be taken against the following collaterals.

    • Fixed Deposits
    • Structured Deposits
    • Approved Stocks and Shares
    • Approved Unit Trusts
    • Life Insurance Policies
    • Gold Certificates

    Below is a comparison of the main characteristics of secured overdraft and secured loans:

    Features Overdraft Term Loan
    Tenure of Loan Short-term revolving Fixed Term
    Interest Rate Usually greater than term loan Usually lesser than overdraft
    Type of Interest rate Variable, pegged to prime rates Variable, pegged to prime rates
    Are loans recallable on demand? Yes No
    Regular repayment No Yes
    Anytime Repayment Yes No
    Partial drawing of loan permissible after repaying partial amount Yes No

    Things to consider before getting a secured loan

    There are a few things which you need to consider before getting a secured loan:

    • The amount of loan required by you.
    • The risk factor.
    • Credit score.
    • Fixed or variable rate.
    • Loan tenure.
    • The interest rate being offered (depends on the loan size, length, your credit score and the free equity in your home).
    • Offers from different lenders.
    • Fees for early repayment.

    Things banks consider before approving a secured loan

    Secured loans are different from unsecured loans in the fact that you need to provide a collateral. But the bank considers a number of points before accepting that collateral and granting the loan. Some of them are:

    • Types of collateral - It is better if the collateral is something that sells easily without losing too much value over time. For example, a car can be easily resold to recover the loan costs. So, car loans are all secured loans.
    • Collateral valuation - This usually requires the opinion of appraisers who are specialists in their fields. In case the collateral is jewellery, a jewellery appraiser will be required to evaluate its purity to ascertain its correct value.
    • Collateral security - The banks consider physically held collateral as the safest option. The collaterals that can be safely held like securities, gold etc. are given preference.
    • Ratio of loan-to-value - In spite of banks trying their best to ascertain the correct collateral value, it may still have a lower liquidation value than expected. Drastic ups and downs in the market economy can affect the prices of precious metals and properties. So, banks always prefer to have a buffer amount between the collateral value and the loan value to act as protection against loss in valuation.
    • Credit risk of a borrower- Although pledging a collateral helps with mitigating risk associated with lending, the banks always prefer a customer with good credit score and history, who pose a lower credit risk.

    Consequences of not paying secured loans

    There are consequences to defaulting on a loan, even if it’s secured. These include:

    • Seizing of the asset given to the bank as collateral.
    • Employment difficulties
    • Having money from seized from your accounts
    • No access to crucial loans in the future.

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