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  • Personal Loan BYTES FROM OUR KITCHEN

    Secured Loans in Singapore

    Are you finding it difficult to find a loan because you have a bad credit score? Are the interest rates charged on your loan amount higher than what you can normally afford? These are just some of the many instances where you might want to opt for a secured loan as these loans are not only easy to obtain but they also come with comparatively lower rates of interest. With secured loans, you have to pledge assets to the bank or the lending organisation against the loan amount you want to borrow. As the pledged assets act as a security or a collateral, banks are comparatively less stringent when it comes to approving secured loan requests.

    The collateral is the key element that separates secured lending from unsecured lending. As opposed to unsecured lending, the risk factor is less in the case of a secured loan. Thus, banks are able to comparatively offer lower rates of interest when it comes to secured loans. The collateral must have a value either equivalent to or more than the borrowed amount. In case the collateral value is less than a certain value, the borrower might have to top it up by pledging other assets.  Basically, the collateral acts as a safety net for banks or lending organisations protecting them against any instance of loss in case of a default. Banks can sell off the assets you have pledged in case you’re unable to repay the loan amount. If banks still fall short in terms of recovering the loan, you will be liable for paying back the amount that remains due. Some of the popular secured loans include mortgages and vehicle loans. Your house generally serves as a collateral in case of a mortgage loan, while in case of a car loan, the collateral is the vehicle you just bought. You will be able to easily obtain a secured loan in Singapore across different banks.

    What Types of Secured Loans Are Available?

    Banks in Singapore offer a wide array of secured loans each with its unique characteristics and features. These loans include:

    • Mortgage: Most people need to borrow a loan in order to finance a property purchase. Mortgage loans are usually considered as a secured mode of lending where you pledge a title deed of a property or a real estate as a collateral to obtain funds. Generally, mortgage loans are available for a tenure of up to 30 years. In Singapore, you can get a mortgage loan for either HDB flats or purchase of private properties.
    • The mortgage submitted against such a loan helps bank protect themselves against any situation involving repayment failure or default. In case you fail to pay back, the bank or the lending organisation has the right to seize your property and sell it in order to cover for the loss.

    • Home equity loan: A home equity loan is another type of secured loan available in Singapore. In case of a home equity loan, the financing is done based on the value of the property that you have fully paid for as opposed to a mortgage loan where financing is granted based on the value of a property which may not have been fully paid for. In case of a home equity loan, the banks can lend you more money if the value of your property has increased significantly. As your home is used as collateral for this loan, you can obtain more funds based on the value of your property.
    • Car loan: These loans also fall into the category of secured loans where you have to pledge an asset in order to obtain the loan. In case of auto loans, the car you purchase usually acts as the collateral. These loans are usually granted for a maximum tenure of 7 years. Different banks in Singapore offer car loans, some of these banks include OCBC and UOB, among others. Banks usually approve these loan requests easily as the car is pledged as a collateral and the risk factor borne by the bank is less. However, in case you fail to repay or default on your loan, banks can seize the vehicle and sell it off to cover the debt.
    • Secured personal loan: You might often be in need of a short-term loan but you might find it difficult to obtain a personal loan because of a low credit score. In such cases, you could opt for a secured personal loan as they can be easily obtained by pledging a collateral. These loans are usually characterised by fixed rates of interest.
    • Citibank offers a Short-Term Fixed Rate Loan with fixed interest rates and flexible tenures. With this loan, you can pledge fixed deposits as collateral. You can obtain a loan quantum of up to 100% of your time deposits.

    • Secured overdraft: With a secured overdraft you can borrow up to a fixed amount. It is a revolving loan facility and it won’t charge you any interest on the loan until you actually use the funds. Besides, secured overdraft have interest rates comparatively lesser than an unsecured line of credit. You have to pledge a collateral in this case. Banks in Singapore generally accept fixed deposits as collateral.
    • You might have to pledge a fixed minimum sum with the bank in order to obtain the line of credit. In case you fail to pay back, the bank might seize your collateral. Asset Line is a secured overdraft offered by DBS Bank. Besides, UOB and HSBC also offer secured overdrafts in Singapore. In the case of UOB, you can pledge fixed deposits, structured deposits, approved unit trusts, and gold certificates as collateral.

      Secured Personal Loans Available in Singapore

      The following secured personal loans are available across different banks in Singapore:

      • HSBC Secured Overdraft
      • Citibank Overdraft
      • UOB Secured Overdraft
      • OCBC Secured Overdraft
      • Maybank Secured Overdraft
      • DBS AssetLine

      Advantages and Disadvantages of Secured Loans

      Let’s take a look at some of the prominent advantages and disadvantages of these kinds of loans:

      Advantages

      The Repayment Time is Usually Longer

      One advantage of a secured loan is that you can borrow funds for a significantly longer term. Thus, you can make repayments over a larger term. This is helpful in case you find it difficult to pay off the entire loan amount over a short tenure. Depending on the type of secured loan, the amount involved, and your credit rating, the repayment tenure will differ.  Mortgage loans generally have a repayment tenure of up to 30 years, while with car loans usually provide you a maximum repayment period of up to 7 years. For instance, the UOB Car Loan comes with a repayment tenure of up to 7 years.

      However, if you take more time in repaying the loan, you will have to pay more in the form of interest charges. While it’s advisable that you clear the loan amount as soon as possible so as to avoid paying unneeded interest charges, you also may not be able to pay huge instalment amounts every month. Finding the right balance between monthly payments and tenure is important.

      Interest Charges are Comparatively Lesser

      Secured loans usually charge you lesser rates of interest when compared to unsecured loans. Since these loans are granted only when you pledge your collateral with the bank or the lending organisation, the banks are in a position where the risk factor is less. Thus, they are able to offer lower rates of interest on the amount you borrow. In case you default, the lending organisations always have the option of seizing your asset and selling it off to cover the debt you owe.

      This is different from an unsecured loan which comes with higher rates of interest. In case of unsecured loans, you don’t have to pledge any asset, and thus banks are in a position of risk when they grant your loan request.

      There is No Requirement for a Perfect Credit Score

      It might be difficult for you to obtain a personal loan in times of need if your credit score is not that great. This is because personal loans are mostly unsecured and you don’t have to give any asset as security against the loan amount. Your credit rating helps the bank determine your creditworthiness. If the score is really poor, banks may hesitate to grant you the loan simply because they are not convinced whether you will be able to pay them back on time or not.

      On the contrary, when you borrow a secured loan, your security against the loan granted can counter the risk the bank undertakes in granting loans to individuals with low credit scores. Thus, it is usually considered easier to get a secured loan However, you must still strive at maintaining a good credit score, as a poor credit score could translate into higher rates of interest offered on your loan. Depending on the bank and your score, your application request might also be denied in case of a personal loan.

      Disadvantages

      Banks can Seize and Sell Off the Asset Pledged

      You have to pledge an asset when you borrow a secured loan. The value of the asset pledged as collateral will depend on the amount you borrow. Usually, you pledge the title deed to the property for which you’re borrowing a mortgage loan. In case of a vehicle loan, you pledge the car that you purchase.

      You might be facing a financial crisis where you’re unable to make repayments for the loan you borrow. In case of a secured loan, banks have the right to seize your asset and sell it off to make up for the loss that they incur. You might lose your home, car, or any other collateral pledge if you default on the loan. We encourage you to make the repayments on time for a secured loan so as to avoid any instance of losing your home or car.

      Secured Loans Bring Temptations for Extravagant Expenses

      Secured loans not only feature lower rates of interest but these can also be obtained easily by pledging an asset as a collateral. Moreover, you can borrow a significantly higher amount of funds when you apply for a secured loan, to finance a particularly big purchase, for say a house or a car.  But there’s also a downside to this. When you borrow a large amount of money in the form of a secured loan, you might often be tempted to spend the cash on unneeded things. Instead of using this money for the original purpose, you might end up using for a whole lot of other reasons. You might even end up under a debt pile in case you make too many unnecessary spends.

      Difference Between Secured and Unsecured Loans

      Secured loans and unsecured loans are differentiated based on a few important aspects. These are listed below:

      The Need for a Collateral

      You will need to pledge an asset you hold as a collateral in case of a secured loan. Depending on the type of secured loan you borrow, the collateral requirement will vary. Usually, banks and other lending organisation will ask you to pledge assets that have a value equivalent to or more than the borrowed amount.

      For instance, if you opt for a mortgage loan, you will have to pledge the property that you want to purchase. Similarly, in the case of an auto loan, you will have to pledge the car you plan to purchase as a collateral.

      There are other types of secured loans where you can pledge your fixed deposits, structured deposits, approved unit trusts, and gold certificates. For instance, UOB offers secured overdraft facility where you can pledge your fixed deposits, structured deposits, or approved unit trusts. However, in the case of an unsecured loan, you don’t have to pledge any asset to borrow funds. Unsecured loans are usually offered based on your credit report and credit score. You might be denied approval for your loan application request in case your credit score is too low. Banks or other lending organisations don’t ask you to pledge any collateral against these loans. Thus, they are at a position of risk when they approve your loan request.

      Ease of Borrowing

      Your credit report and credit score do play an important role when banks decide about the approval of your loan request. However, you can get a secured loan even if your credit score is low, as banks are at less risk when they grant these loans. The presence of a collateral in this arrangement is why banks don’t set very stringent parameters while evaluating your loan request. Usually, it’s easier to get a secured loan when you compare it to obtaining an unsecured loan.

      On the other hand, when you apply for an unsecured loan, you don't have to pledge any collateral which put banks in a position of risk when you default on payments. In this case, banks don’t have the option to cover the outstanding amount by selling off an asset in case you default on your payments.

      They evaluate your unsecured loan application based on several criteria. Banks check your credit report and your credit score before they approve your application. They check your credit report for instances of repayment defaults and other misconduct. Your loan application request for an unsecured loan will only be granted when you have a robust credit report with a high credit score. Banks can even deny your loan application in case your credit report and score are poor.

      The Difference in Interest Rates

      The rate of interest charged is another aspect that differs in case of a secured loan and an unsecured loan. Banks are able to offer you lower rates of interest when you opt for a secured loan as you have to pledge a collateral. Since banks have lesser risk on secured loans, they are able to grant you these loans at a lesser rate of interest. This will help you save a significant amount of money in terms of interest charges.

      On the other hand, interest rates charged on an unsecured loan are significantly higher than a secured loan. Since you don’t have to pledge security, banks may lose money in case you default on paying your instalments. This is the main reason why banks charge you higher rates of interest when you opt for an unsecured loan.

      Failure to Make Repayments

      Your collateral is at risk if you fail to make repayments in case of a secured loan. If you continue to default on your repayments, lending institutions can seize and sell off the asset pledged in such situations to cover the outstanding amount.

      For instance, you can lose your home in case you fail to make repayments on your mortgage loan. Thus, it’s advisable to make repayments in full and on time in case of a secured loan so as to avoid any instance of losing your collateral.

      In case of an unsecured loan, you don’t have to worry about losing your collateral in case you default on payments. Banks can, of course, hold you liable under the law to pay for the losses they suffer due to your defaults in repayment. Also, failing to repay an unsecured loan would adversely impact your credit report and lower your credit score. You might be even denied approval on your future loan applications. So, you must ideally strive to make repayments on time even in case of an unsecured loan.

      What Factors Influence the Approval of Secured Loans?

      The approval for your loan application request in case of a secured loan will depend on the following factors:

      Age Criteria

      Age is one of the primary criteria that affect the approval of your loan application request. It helps in determining the tenure and your ability to pay in case of a secured loan. A young applicant might find it difficult to repay a loan when compared with a middle-aged applicant. Most banks in Singapore have fixed the minimum age requirement to apply for these loans at 21 years.

      For example, you have to be at least 21 years of age or more to apply for the UOB Private Home Loan. The same age criterion will be applicable in case of the UOB Car Loan.

      Repayment Ability

      It’s easier to get a secured loan when compared with obtaining an unsecured loan. You can get a secured loan even if your credit score is poor. Banks are in a position of lesser risk if you default on making repayments in case of a secured loan. They always have the option of selling off the collateral to cover for the loss.

      However, banks do asses your repayment ability to decide on the approval of your loan application. Your income can play a very important role in the approval process. Based on your income, banks are able to assess if you will be able to afford the monthly instalments. If your income is low, banks might find you a risky investment and may not approve your loan request.

      Supporting Documents

      When you apply for a secured loan, you have to not only pledge an asset as collateral but you have to also submit all the relevant documents based on which banks or other lending institutions will approve your loan application. If you fail to submit even one of the required documents, banks may not approve your application. Banks may also reject your application in case you submit a wrong or a fake document.

      Depending on the bank and the type of loan the documents required will differ. In case you’re applying for a secured loan, it’s mandatory to submit your identification documents which can include a photocopy of NRIC or Passport. You must also submit your income documents stating the name of the organisation, your position, and your income.  Most banks ask you to submit computerised payslips of the previous two months, latest Income Tax Notice of Assessment, and CPF Contribution History Statement. In the case of foreigners, banks might ask for your Employment Pass details. In the case of a car loan, you will also have to submit a copy of the vehicle sales agreement. On the other hand, you have to submit a copy of the sale and purchase agreement in case you’re applying for a mortgage loan. Banks and other lending institutions might also ask you to submit details of all your current financial commitments such as other secured as well as unsecured loans.

      Credit Score

      Another important criterion that affects the approval of a secured loan is your credit score. Banks usually assign this score based on several parameters that include but is not limited to the number of loans you have applied for, and your repayment history.

      In the case of a secured loan, the credit score criterion is not that stringent and banks may approve your loan application even if you have a low credit score. Banks may approve your application as they are less susceptible to risks due to the involvement of your collateral in the arrangement. Banks can cover their loss in any case of default by simply selling off the asset pledged. However, banks might also reject your loan applications in certain cases. If your credit score is really poor or you have defaulted several times on making repayments in the past, banks might not be willing to approve your loan requests.

      Approving requests for applicants with a really poor credit score put banks in a position of risk. This is a scenario where banks might reject your loan request in case of an unsecured loan. Thus, you must ideally strive to maintain a good credit score in order to avoid any such instance where your application gets rejected.

      What Happens If You Default on a Secured Loan?

      Defaulting on repayment of secured loans works in a manner different from that of an unsecured loan. Depending on the type of loan your opt for the collateral requirements will differ.

      As we’ve already seen earlier, you are required to pledge the title of deeds to your property if you’re applying for a home loan. In case of a car loan, banks will need you to pledge the vehicle you plan to purchase. Similarly, you have to pledge a collateral in case of a secured overdraft too. Banks usually ask you to pledge fixed deposits, structured deposits, or other specific investments if you want to apply for a secured overdraft.

      In case you default on making repayments, banks and other lending institutions have the right to possess your asset and sell it off in order to cover for the losses they suffer. In such situations, you face the risk of losing your collateral. It could mean a significant loss for you if you end up losing your home or car. Thus, it’s always advisable to make repayments on time and not default on your secured loan.

      Besides the risk of your collateral being sold off, there is also the chance of your credit score being affected. Every time you default on your repayments, it will be flagged in your credit report and your credit score will decrease. This will further affect your creditworthiness negatively and you may find it difficult to get a loan in the near future. If you’re really finding it difficult to make repayments, you can get in touch with a customer relations executive from your bank and place a request for an alternate arrangement for making repayments. Banks might be able to help you with this.

      Why Should You Go for a Secured Loan?

      You can go for a secured loan in the following scenarios or for the reasons listed below:

      You’re Planning to Purchase a New Home or a Property

      At some point in our life, we might have to encounter the decision about whether to invest in a property or not. This can be a taxing decision for most of us as getting a new property or a home involves a large amount of money, particularly in Singapore. You may not be able to finance the entire purchase right out of your own pockets. In such a situation, you will have to ideally opt for a loan to buy a property in Singapore. However, there are certain things you should keep in mind before getting a loan to finance the purchase of a new property. You shouldn’t get a personal loan in case you’re purchasing a new home as these loans are unsecured and are characterised by higher rates of interest.

      Home loans or mortgage loans are your best choice if you need money for buying a new property. You will be able to borrow a significant amount of funds when you opt for these loans. Besides, the rates of interest are comparatively lesser as these loans fall under secured means of lending. Although you have to pledge the title of deeds to your property for the entire tenure of the loan, it still works out to be a better source for financing the purchase. Most banks in Singapore offer their customers with mortgage loans at attractive rates of interest. The list of banks includes OCBC, UOB, DBS, and Maybank, among others.

      You Have Decided to Get Yourself a New Car

      Home or property purchases aren’t the only transactions that could be heavy on your pockets. Buying a car could also turn out to be an expensive affair in Singapore. You will need to look for an appropriate bank or a lending organisation to borrow funds and finance your car purchase.

      Different banks and financial institutions in Singapore offer car loans to their customers. These include UOB, OCBC, and Maybank, among others. Moreover, these loans can be easily obtained if you meet their requirements and criteria for a collateral. The value of the collateral must be at least equivalent to or greater than the value of the vehicle you want to purchase. Most banks ask you to offer the car you plan to purchase as collateral against the auto loans.

      You should never go for a personal loan if you’re planning to purchase a car as these loans generally carry higher rates of interest. Moreover, car loans are specifically designed for you to obtain the necessary financing for purchasing a car. Banks face lesser risks when they approve your auto loan application it includes your car as collateral in the arrangement. In case banks or other financial organisations find you defaulting in terms of making repayments, they have the right to seize and sell your car to cover the debts incurred in such scenarios.

      You are Looking for Lower Interest Rates

      Personal loans and other unsecured types of lending usually charge higher rates of interest when you apply for a loan. This aspect might often discourage you from applying for these loans. In case of an unsecured loan, banks are usually susceptible to risk as in case of a default They can’t simply take possession of your assets and sell them off in order to recover their money.

      On the other hand, in the case of a secured loan, you might be able to enjoy comparatively lower rates of interest. The asset you pledge as collateral will help you get lower rates on the borrowed amount, since banks have the option of selling your pledged collateral to cover your debt in case you don’t make your payments on time.

      You Want a Longer Repayment Tenure

      Your financial situation might often make it difficult for you to pay back a loan over a short tenure. However, unsecured loans often come with shorter tenures. You have to pay back the borrowed amount within that tenure. In case you choose to pay back the loan within the maximum tenure, you will have to pay unnecessary charges in the form of interest.

      This might cost you more than what you bargained for. At times, people fall under a debt pile because they are unable to make repayments within the stipulated tenure. However, when you opt for a secured loan, you will not have to face any such hassle. Secured loans usually come longer tenures, thus providing you with more time to pay back the borrowed amount. This is particularly helpful if your existing financial situation doesn’t allow you to repay the loan in a short period.

      The maximum tenure of repayment usually differs from one secured loan product to the other. Home loans in Singapore are usually characterised by a maximum repayment tenure of up to 30 years. On the other hand, when it comes to auto loans, you can enjoy a maximum loan repayment period of up to 7 years. For example, the OCBC Car Loan allows you to repay your loan amount over a maximum period of up to 7 years. You must ideally strive at paying back the borrowed amount as soon as possible. The more time you take in repaying, the more you will be paying in the form of interest charges. You can avoid paying unnecessary charges my simply making full repayments on time.

      You Want to Borrow a Large Quantum of Funds

      In the case of an unsecured loan, banks or other financial approve your loan amount based on your credit score. In case you don’t have a good credit score, banks might approve your loan application for an amount lesser than the one originally requested for.

      But, there might be an instance where you need to borrow a significant amount of funds. This will only be possible when you maintain a good credit report or you have a good credit score. For say, you need a home loan or a car loan. Getting a secured loan will be your best option in this scenario. However, when we talk about the secured mode of lending, there will be more chances of your loan application for a large sum of money being approved. Thus, most people opt for a secured loan when they plan to buy a house or a vehicle as these purchases usually involve a significant amount of funds.

      You Have a Low Credit Score

      A credit score is another parameter which helps you in deciding between a secured and an unsecured form of lending. While banks do evaluate your credit score while approving your loan application for a secured loan, they do not give it a lot of consideration since you also have to pledge an asset as collateral. Even if you have a poor credit score, you still might be able to get the loan you want based on security you are willing to provide. However, this fact is not the same in the case of unsecured loans. Banks or other financial organisations usually check your credit score before approving your loan request. In the case your credit score is low, banks might even reject your application.

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